BIR Ruling [DA-040-05]

January 28, 2005 BIR RULING [DA-040-05] Section 24 (D) (1) BIR Ruling No. 58-2000 & DA-054-03 Ms. Helen A. David 1436 M. Laserna St. Kalibo, Aklan M a d a m : This refers to your letter dated July 1, 2004 indorsed to this Office by Director Jonas B. Lindo of the Office of the President, requesting for information on whether there is a law that residential houses with an assessed value of P175,000.00 and below are exempt from taxation. In reply, please be informed that this Office is not aware of any such law. However, Republic Act (R.A.) No. 7279, otherwise known as The Urban Development and Housing Act of 1992 which took effect on March 29, 1992, grants several tax incentives and benefits to government-owned and controlled corporations and local government units, as well as private sector participating in socialized housing and community mortgage program (CMP). Revenue Regulations (Rev. Regs.) No. 9-93 which provides for the guidelines and procedures for the availment of tax incentives as provided for in the Act were promulgated one year after its effectivity or on June 27, 1993. Properties sold under the CMP shall be exempted from capital gains and expanded withholding taxes (for individual landowners), or ordinary corporate income tax and expanded withholding tax, if sold by a corporation. However, the documentary stamp tax shall be paid for every sale of property under the Community Mortgage Program based on the actual consideration of sale. The occupants of areas for priority development, zonal improvement program (ZIP) sites and slung improvement and resettlement (SIR) program sites shall be exempted from the payment of documentary stamp tax, registration fees and other fees for the issuance of transfer certificates of titles. Under Section 3(b)(1) of Rev. Regs. No. 12-94, sales of real property by a corporation which is registered and certified by the Housing and Land Use Regulatory Board (HLURB) as engaged in socialized housing projects pursuant to R.A. No. 7279 and its implementing regulations whereby the selling price of the house and lot or only the lot does not exceed P150,000.00 (now P225,000.00 pursuant to the Housing and Urban Development Coordinating Council Memorandum Circular No. 2, Series of 2002) is exempt from creditable withholding tax. The occupants of areas for priority development, ZIP sites, and SIR sites shall also be entitled to 100% deduction from every homebuyer's gross income tax of all interest payments made on documented loans incurred for the construction or purchase at the homebuyer's house. Private sectors participating in socialized housing shall be exempt among others, from payment of capital gains tax on the sale of raw land for use in the socialized housing project as certified by HLURB. Other provisions of tax laws relating to principal residence/family home are as follows: 1) Section 24(D) 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, pursuant to Section 24(D)(2) of the Tax Code of 1997. cHEATI 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 thereon under Section 24 (D)(1) of the Tax Code of 1997 (BIR Ruling No. DA-054-2003 dated February 21, 2003). 2) Section 86(A)(4) of the Tax Code of 1997 An amount equivalent to the current fair market value of the decedent's family home is deductible from the value of the gross estate, provided, that if the said current fair market value exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family home must have been the decedent's family home as certified by the barangay captain of the locality. 3) Section 109(x) of the Tax Code of 1997 as amended by Republic Act No. 9238 Lease of a residential unit with a monthly rental not exceeding Eight thousand pesos (P8,000) is exempt from the value-added tax. This Office has no jurisdiction over local taxation (i.e., exemption from real property tax). You may address your query to the Department of the Interior and Local Government Finance. 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 as null and void. TASCEc Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group