BIR Ruling [DA-087-00]

February 10, 2000 BIR RULING [DA-087-00] Mr . Victorino V. Lahoz 4255 Ermita Street Barangay Palanan Makati City S i r : This refers to your letter dated January 3, 2000 requesting for exemption from the payment of capital gains tax on the sale of your principal residence in favor of Spouses Francisco Antonio and Marie Ann Sabando pursuant to Section 24 (D)(2) of the Tax Code of 1997. prcd It is represented that you are the absolute and registered owner of a parcel of land together with the improvements thereon located at Lot 34 Block 15 Ipil-Ipil Street, Multinational Village, Phase IV, Paraaque City covered by TCT No. 65071 issued by the Registry of Deeds for Paraaque containing an area of 150 square meters; that you have been trying to sell the above-mentioned property since January 1999 and was finally sold on December 16, 1999 where a Deed of Absolute Sale was executed in favor of Spouses Francisco Antonio and Marie Ann Sabando for and in consideration of P1,900,000.00; that the said property is your principal residence as certified to by the Punong Barangay Clemente M. Advincula; that you are also the owner of a lot located at 11-B Jervois cor. Ensueo Streets, Barangay Pinagkaisahan, Makati City; that prior to the said sale, you have obtained a loan from Kalayaan Engineering Co., Inc. in the amount of P1,000,000.00 with 10% interest per annum, payable as follows: (1) P500,000.00 upon receipt of payment from the sale of residence in Paraaque; and prcd (2) Balance in two (2) years from the date of receipt of loan through monthly salary deduction; for the construction of a new house while awaiting for the sale of the said property in Paraaque; that the said construction started sometime on April 6, 1999 upon the release of the Building Permit but the same was temporarily stopped in September 1999 because of non-availability of funds since the house and lot subject of a Deed of Absolute Sale was not yet sold until December 1999; 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 Declaration; 4) Certification of Barangay Chairman; and 5) Sworn Declaration of Intent. 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 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. cdlex 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 and/or construct another 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 Spouses Francisco Antonio and Marie Ann Sabando, is exempt from the 6% capital gains tax imposed under Section 24 (D)(1) of the Tax Code of 1997. However, the said sale shall be subject to the documentary stamp tax imposed under Section 196 of the same Code based on the consideration or current fair market value as determined in accordance with Section 6(E) of the said Code. (BIR Ruling No. DA-357-98 dated September 3, 1998). 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. 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, this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. EQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)