BIR Ruling [DA-032-00]

January 13, 2000 BIR RULING [DA-032-00] Mr . Fortunato Eusebio No. 265 Miguelin St. Sampaloc, Manila S i r : This refers to your letter dated September 28, 1999 requesting in effect for a ruling exempting the sale of your principal residence from the payment of capital gains tax pursuant to Section 24(D)(2) of the Tax Code of 1997. Documents show that Fortunato Eusebio, married to Luciana Cortez is the registered owner of a parcel of land with a residential house constructed thereon situated at No. 265 Miguelin St. Sampaloc, Manila; that said property is covered by Transfer Certificate of Title No. 232180 issued by the Registry of Deeds for the City of Manila; that you are a bona fide resident of the above-described property as certified to by Barangay Chairman Emmanuel Tecson; that on September 27, 1999, you executed a Deed of Absolute Sale in favor of Ms. Leny Simeon for and in consideration of Nine Hundred Thousand Pesos (P900,000.00); that the proceeds from the aforementioned sale will be fully-utilized in the acquisition of another real property that will serve as your residence; that in the same letter, you have likewise notified the Commissioner within thirty (30) days from the date of sale or disposition of your intention to avail of the tax exemption prescribed under Section 24(D)(2) of the Tax Code of 1997; and that in support of your request, you submitted to this Office the following documents: 1) Deed of Absolute Sale; 2) Transfer Certificate of Title; 3) Tax Declarations; 4) Sworn Declaration of Undertaking; and 5) Certification from the Barangay Chairman where the property sold is situated stating therein that you are a resident of the said Barangay. In reply, please be informed that pursuant to Section 24(D)(2) of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, 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 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)(1) 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 finance the acquisition of a new real property that will serve as your principal residence within eighteen (18) calendar months reckoned from September 27, 1999 as 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 Ms. Leny Simeon is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. However, the same 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. However, this exemption shall be rendered null and void and 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 sworn declaration and post reporting requirements and all other conditions set forth under 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 will 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