BIR Ruling [DA-110-00]

February 21, 2000 BIR RULING [DA-110-00] Mr . Fernando De Guzman 24 Laguna St., Bago Bantay Quezon City S i r : This refers to your letter dated February 7, 2000 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 24 Laguna St., Bago Bantay, Quezon City covered by Transfer Certificate of Title No. 35197 (267504) in favor of Spouses Stephen Brown and Grace Pelino Brown pursuant to Section 24(D)(2) of the Tax Code of 1997. cdlex Documents submitted disclosed that Fortunata de Guzman, Fernando de Guzman, Valeriana de Guzman and Estelita de Guzman are the registered owners of a parcel of land including improvements thereon situated at No. 24 Laguna St., Bago Bantay, Quezon City; that Fortunata de Guzman-Navarro and Valeriana de Guzman-Dela Costa executed an Irrevocable Special Power of Attorney in favor of Fernando de Guzman and Estelita de Guzman-Competente under the Notarial Register of Atty. Edgar Julio S. Asuncion, Doc. No. 285, Page No. 57, Book No. I, Series of 1993; that the said property is your principal residence and that of Estelita de Guzman-Competente; that both of you sold your principal residence on January 31, 2000 in favor of Ms. Grace Pelino Brown with postal address at Laguna St., Bago Bantay, Quezon City for and in consideration of P1,300,000.00; that you are intending to use the proceeds of the said sale to finance your acquisition of your intended new principal residence; and that in support of your request, you submitted to this Office copies of the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title No. 35197 (267504); 3. Corresponding tax declaration; 4. Sworn declaration of Intent as to the utilization of the proceeds of said sale; 5. Certification of the Barangay Captain of the place where your sold property is located to the effect that the same is your principal residence prior to the sale thereof; and 6. Other pertinent 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 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 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. LibLex The same Section further provides that if there is no full utilization of the proceeds of the 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, thereon. 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 new principal residence within eighteen (18) calendar months reckoned from January 31, 2000 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 Grace Pelino Brown 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. The entire proceeds of the sale involving TCT No. 75538 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. (BIR Ruling No. 114-98 dated July 27, 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, this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)