BIR Ruling [DA-048-00]

January 20, 2000 BIR RULING [DA-048-00] Uvero, Sheng, and Associates 4/F Shipping Center Building 707 Andres Soriano Jr. Avenue Intramuros, Manila Attention: Atty . Francis Romulo I . Badilla, Jr . Gentlemen : This refers to your letter dated October 25, 1999 requesting in behalf of your client, Luzviminda C. Alvarez, for exemption from the payment of capital gains tax on the sale of her principal residence situated at Block 48, Lot 19, Blazing Star Street, Evergreen Executive Village, Bagumbong, Caloocan City covered by Transfer Certificate of Title No. C-299271 in favor of Bienvenido C. Quindoy pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that your client is the owner of a parcel of land including improvements thereon situated at Block 48, Lot 19, Blazing Star Street, Evergreen Executive Village, Bagumbong, Caloocan City; that the said property is her principal residence; that she sold her principal residence on October 15, 1999 in favor of Bienvenido C. Quindoy, married to Arcely Quindoy, with postal address at Block 49, Lot 38, Blazing Star Street, Evergreen Executive Village, Bagumbong, Caloocan City for and in consideration of P200,000.00; that your client is intending to use the proceeds of the said sale to finance her acquisition of her intended new principal residence; and that in support of her request, you submitted to this Office copies of the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title No. C-299271; 3. Corresponding tax declaration; 4. Sworn declaration of Intent as to the utilization of the proceeds of said sale; 5. Certification of the Barangay Captain of the place where your sold property is located to the effect that the same is your principal residence prior to the sale thereof; and 6. 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 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, and since you have manifested your intention to fully utilize the proceeds of the sale or disposition of your property to buy another parcel of land including improvements thereon as your new principal residence within eighteen (18) calendar months reckoned from October 15, 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 Bienvenido C. Quindoy is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 but subject to the documentary stamp tax imposed under Section 196 of the same Code. 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. (BIR Ruling No. 114-98 dated July 27, 1998) 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. (BIR Ruling No. 114-98 dated July 27, 1998) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group