BIR Ruling [DA-095-06]

March 7, 2006 BIR RULING [DA-095-06] S24 (D) (2); DA-334-98; DA-088-02 Ms. Mylene Tan Richardson No. 7, Mt. Kilimanjaro Street Fairmont Hills Subdivision Antipolo City M a d a m : This refers to your letter dated March 3, 2006 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 7, Mt. Kilimanjaro Street, Fairmont Hills Subdivision, Antipolo City pursuant to Section 24(D)(2) of the Tax Code of 1997, as amended. It is represented that your above principal residence covered by Transfer Certificate of Title (TCT) No. R-711 of the Registry of Deeds of Marikina City, has been offered for sale since the year 2002; that there had been several offers to buy but to no avail; that in 2003, there was a potential buyer, however, after several negotiations and before the supposed date of signing of the document of sale said. buyer changed his mind; that at the same time, thinking that you would be able to sell your property, you already bought a parcel of land and started the construction of your new principal residence; that the funds used to buy the said parcel of land and the funds used for the initial construction of your new residence were borrowed from your parents thinking that you would be able to pay the same from the proceeds of the sale of your principal residence; that only recently that someone has offered to buy your property; that on March 3, 2006, you executed the Deed of Absolute Sale of the above-mentioned property in favor of the buyer, Ms. Marion De Gunman Ramos; that the proceeds of the foregoing sale will be used to pay the funds you borrowed from your parents and to finish the construction of your new principal residence in Ternate, Cavite; and that in support of your request, you submitted to this Office photocopies of the following documents: 1. Copy of the Deed of Absolute Sale; 2. Photocopy of the TCT; 3. Copies of the Tax Declarations; 4. Certification of the Barangay Captain; and 5. Copy of the Affidavit of Intention to avail the exemption. In reply, please be informed that pursuant to Section 24(D)(2) of the Tax Code of 1997, as amended, 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. AcSCaI 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 same Tax Code. From the foregoing, and since you have already 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 Ms. Marion De Guzman Ramos, is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, as amended, 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; DA-088-2002 dated May 7, 2002). 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service