BIR Ruling [DA-088-99]

February 15, 1999 BIR RULING [DA-088-99] Mr. Nolan D. Ofrecio Corporate Communication Office Bureau of Internal Revenue Diliman, Quezon City S i r : This refers to your letter dated April 23, 1998 requesting exemption from the payment of capital gains tax on the sale of your rights over a parcel of land together with the improvements thereon and which is considered as your principal residence in favor of Spouses Edward A. Ignacio and Rebecca Y. Ignacio pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that you sold the entire proprietary rights over a parcel of land together with the improvements thereon located at Lot 2, Block 22 Ad Valorem Street, BIR Housing, Bagbag, Fairview, Quezon City from Spouses Edward A. Ignacio and Rebecca Y. Ignacio by virtue of a Deed of Assignment of Rights dated March 23, 1998 for and in consideration of P300,000.00 that the proceeds from the said transfer were used in acquiring a new property (lot); in Sta. Rosa Laguna from Spouses Alfredo R. Aldana and Gloria C. Aldana by virtue of a Deed of Absolute Sale for and in consideration of P150,000.00; that the remaining proceeds from the sale will be utilized for the construction of a new principal residence; and that in support of your request, you submitted to this Office the following documents: 1. Deed of Assignment of Rights; 2. Transfer Certificate of Rights; 3. Deed of Absolute Sale executed by Spouses Alfredo R. Aldana and Gloria C. Aldana in favor of Spouses, Nolan D. Ofrecio and Marveluz M. Ofrecio; 4. Tax Declarations; 5. Certificate of Punong Barangay where the property bought is located, to the fact that you and the members of your family are residents to the Place and known in the community. In reply, please be informed that pursuant to Section 24(D)(2) of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, 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 his 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. 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 principal residence within eighteen (18) calendar months reckoned from March 23, 1998 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 Edward A. Ignacio and Rebecca Y. Ignacio is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. CSDAIa The concerned Register of Deeds is 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. 114-98 dated July 27, 1998) This ruling is being issued on the basis of the foregoing facts as represented. However, in upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)