BIR Ruling [DA-003-01]

January 16, 2001 BIR RULING [DA-003-01] 27 (D) (2) DA-169-2000 Spouses Alejandro G . Paterno and Milagros L . Paterno 15 Sampaguita Avenue Mapayapa Village II Capitol Site, Quezon City Gentlemen : This refers to your letter dated September 2, 2000 requesting for exemption from the payment of capital gains tax on the sale of your principal residence in favor of Spouses Victor T. Santos and Marissa S.P. Santos pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that you are the absolute and registered owner of a residential house and lot situated at No. 15 Sampaguita Avenue, Mapayapa Village II, Capitol Site, Quezon City covered by TCT No. 262204 containing an area of 416 square meters; that on August 31, 2000, a Deed of Absolute Sale was made and executed by you in favor of Spouses Victor T. Santos and Marissa S.P. Santos for and in consideration of Three Million Two Hundred Thousand Pesos (P3,200,000.00); that the said property is your principal residence as certified to by the Barangay Chairman Felicito A. Valmocina of Barangay Holy Spirit, Quezon City; that, as stated in your Deed of Undertaking, the proceeds from the said sale will be fully utilized to buy and/or construct your new principal residence; and that in support of your request, you submitted to this Office the following documents: 1. Deed of Absolute Sale; 2. Deed of Undertaking; and 3. Certification by the Barangay Chairman where the property sold is located, to the fact that you are a bonafide resident of the Place. In reply, please be informed that pursuant to Section 24(D)(2) of the Tax Code of 1997, capital gains presumed to have been realized from the sale or disposition of principal residence by natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of sale or disposition shall be exempt from the capital gains tax imposed under Section 24(D)(1) of the same Code, provided, that the historical cost or adjusted cost basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired, and that the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of your intention to avail of the tax exemption thus mentioned, and which can only be availed of once every ten (10) years. The same Section further provides that if there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax. For this purpose, the gross selling price or fair market value at the time of sale, whichever is higher, shall be multiplied by a fraction which the unutilized amount bears to the selling price in order to determine the taxable portion for the purpose of computing the tax prescribed under Section 24(D)(1) of the Tax Code of 1997. TDcHCa From the foregoing, and since you have manifested your intention to fully utilize the proceeds of the sale or disposition of your property to buy and/or construct another new principal residence within the time required by law and have notified the Commissioner of the same within thirty (30) days from the sale or disposition of your property, the proceeds from the sale of your property in favor of Sps. Victor T. Santos and Marissa S.P. Santos, is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. However, the said sale shall be subject to the documentary stamp tax imposed under Section 196 of the same Code based on the consideration or current fair market value as determined in accordance with Section 6(E) of the said Code, whichever is higher. (BIR Ruling No. DA-357-98 dated September 3, 1998) The entire proceeds of the said sale, however, shall be subject to the capital gains tax and the corresponding penalties thereto in case the seller failed to comply with all the conditions set forth under Section 3 of Revenue Regulations No. 13-99 dated July 26, 1999, implementing Section 24(D)(2) of the Tax Code of 1997. cDIaAS This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group