BIR Ruling [DA-009-00]

January 5, 2000 BIR RULING [DA-009-00] Mr . Pablo F. Sugay #49 Eisenhower Street, San Juan, Metro Manila S i r : This refers to your letter dated July 2, 1999 requesting in effect for exemption from the payment of capital gains tax imposed under Section 24(D)(2) of the Tax Code of 1997. It is represented that you are the registered owner of a parcel of land with improvements thereon situated at #49 Eisenhower Street, San Juan, Metro Manila consisting of One Thousand (1,000) square meters, more or less, covered by Transfer Certificate of Title No. 441202 issued by the Registry of Deeds for the Province of Rizal; that the said address is your principal residence; that you executed a Deed of Absolute Sale over the above-mentioned properties in favor of Perla Ventura for the sum of Forty Million Pesos (P40,000,000.00); that you are going to use the proceeds of the sale to buy or build a new residence; and that you intend to complete the construction within eighteen (18) months from the date of sale of your properties. 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 their 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 her intention to avail of the tax exemption thus mentioned, and in 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)(2) of the Tax Code of 1997, thereon. From the foregoing, it is clear that you will use the proceeds of the sale or disposition of your properties to purchase a new principal residence within one (1) year or within the period allowed by law. Accordingly, since you have complied with all the conditions set forth under Section 24(D)(2) of the Tax Code of 1997, the proceeds from sale of your properties is exempt from the 6% capital gains tax. However, the same transaction is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the gross selling price or fair market value/zonal value of the property whichever is higher. 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. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group