BIR Ruling [DA-023-00]

January 11, 2000 BIR RULING [DA-023-00] Ms . Maria Bernadette C . Lamers No. 5 Carrot Street, Valle Verde 5 Pasig City M a d a m : This refers to your letter dated July 14, 1999 requesting for a ruling that the sale of your principal residence is exempt from the payment of capital gains tax pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that you are the registered and lawful owner of a residential house and lot located at No. 5 Carrot Street, Valle Verde 5, Pasig City covered by Transfer Certificate of Title No. 61483 issued by the Registry of Deeds for the Province of Rizal; that said house and lot had served as your principal place of residence until you sold the same last July 19, 1999 in favor of Beryl So; that because of said sale of your principal residence you intend to use the entire proceeds thereof to buy a new principal residence within eighteen calendar months from the date of sale; and that in support of your request, you submitted to this Office copies of the following documents: 1. Barangay Certification that you are a bonafide resident of No. 5 Carrot Street, Valle Verde 5, Pasig City; 2. Deed of Absolute Sale executed between you and Beryl So; 3. Transfer Certificate of Title No. 61483; 4. Sworn Declaration of Intent duly notarized; and 5. Other pertinent documents. 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 his 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. 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/acquire your 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 Beryl So is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. However, the said sale 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, whichever is higher. The Register of Deeds concerned is however, requested to annotate at the back of the subject Certificate of Title that the subject tax exemption shall be rendered null and void and that the entire proceeds of the said sale shall be subject to the capital gains tax and the corresponding penalties thereto in case the seller failed to comply with the conditions set forth under Section 24(D)(2) of the Tax Code of 1997. (BIR Ruling No. DA-489-98 dated November 16, 1998, citing BIR Ruling No. 111-98 dated July 8, 1998) 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, and/or the conditional requirements set forth therein are not complied with, 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