BIR Ruling [DA-054-03]

February 21, 2003 BIR RULING [DA-054-03] Michael T. Que No. 5 Dapdap Road Forbes Park Makati City S i r : This refers to your letter dated February 14, 2003 requesting for exemption from the payment of capital gains tax on the proposed sale of your principal residence situated at No. 5 Dapdap Road, Forbes Park, Makati City pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that you are the owner of a parcel of land together with the improvements thereon located at No. 5 Dapdap Road, Forbes Park, Makati City; that you are a bona fide resident of Makati as certified to by Mr. Pedrito L. Medina, Jr., General Manager of Forbes Park Association, Inc.; that you intend to sell the aforementioned property and use the proceeds thereof in buying or constructing a new principal residence; that a Deed of Absolute Sale covering your principal residence was executed in favor of Spouses Enrique and Susan Filamor for and in consideration of P26,000,000.00 is not dated and not notarized in order to avoid payment of penalties and interest imposed in the delay of payment of taxes as you have intention to inquire from the BIR if the foregoing transaction is covered by the capital gains tax exemption under Section 24(D)(2) of the Tax Code of 1997; and that in support of your request, you have submitted the following documents: (1) Undated Deed of Absolute Sale in favor of Spouses Enrique and Susan Filamor; (2) Certified true copy of the Transfer Certificate of Title; (3) Certified true copy of the Tax Declaration; (4) Certification issued by Mr. Pedrito L. Medina, Jr., certifying that you are a bona fide resident of Makati; (5) Sworn Declaration of Intent; (6) Escrow Agreement; and (7) Such other 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 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. 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. SCIacA From the foregoing, and since you will fully utilize the proceeds of the sale or disposition of your property in the acquisition of the land and the construction of your new principal residence 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 Spouses Enrique and Susan Filamor 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. ( BIR Ruling No. DA-334-98 dated July 21, 1998 ) The concerned Register of Deeds 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 all the conditions set forth under Section 24(D)(2) of the Tax Code of 1997. ( BIR Ruling No. 097-98 dated June 24, 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. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service