BIR Ruling [DA-088-02]

May 07, 2002 BIR RULING [DA-088-02] S. 24 (D) (2); DA 334-98 Mrs. Dolores R. Fortun No. 22 Saturn Street, Bel-Air Village Makati City M a d a m : This refers to your letter April 10, 2002 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 22 Saturn Street, Bel-Air Village, Makati City pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that your family has been a resident of Bel-Air Village, Makati City since 1993; that you have plans of moving to Dasmarias Village, Makati City; that you placed your house in the market for sale in the latter part of 2000 to have funds to acquire a Dasmarias house; that sometime in March of 2001, there came an irresistible offer from your broker regarding a foreclosed asset of Banco De Oro located at 1728 Sampaguita Street, Dasmarias Village, Makati City; that you borrowed from Rizal Commercial Banking Corporation the funds to pay for the price of the aforementioned asset knowing that you can pay off the said loan amount out of the proceeds of the sale of your principal residence; that you proceeded in purchasing the foreclosed property at the price of P27 Million and had the existing improvement thereon demolished; that you are now in the final stage of constructing your house with a cost of P13 Million; that in March 2002, you were able to sell your principal residence in Bel-Air Village, Makati City, which is covered by TCT No. 183952 of the Registry of Deeds of Makati City, in the amount of P13,600,000.00; that the deed of sale covering the foregoing sale of your principal residence in favor of Spouses Alexander and Monique Ricafort 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 the intention to inquire from this Office if the foregoing transaction is covered by the capital gains tax exemption given to taxpayers who dispose of their primary residence in order to acquire or construct a new principal residence within eighteen (18) months from the date of such sale/disposition; and that in support of your request, you submitted to this Office photocopies of the following documents: 1. Undated Deed of Absolute Sale in favor of Spouses Alexander and Monique Ricafort; 2. Deed of Sale showing the acquisition of the new principal residence; 3. Corresponding Transfer Certificates of Title; 4. Tax Declaration; and 5. Documents pertaining to the construction of the new principal residence. 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, thereon. From the foregoing, and since you have already fully utilized 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 Alexander and Monique Ricafort, 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). 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 and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Acting Assistant Commissioner Legal Service