BIR Ruling [DA-137-00]

March 6, 2000 BIR RULING [DA-137-00] Sec. 24 (d) (2); DA-357-98; DA-137-2000 Mr. Walfrido A. Lim No. 23-C, Cenacle Drive Sanville Subdivision, Arfel Homes Diliman, Quezon City S i r : This refers to your letter dated November 18, 1999 requesting for a ruling exempting the sale of your principal residence from the payment of capital gains tax pursuant to Section 24(D)(2) of the Tax Code of 1997. Documents submitted show that Walfrido A. Lim, married to Rosita C. Lim, is the absolute and registered owner of a parcel of land including improvements existing thereon situated at 23 Cenacle Drive, Sanville Subdivision, Arfel Homes, Diliman, Quezon City covered by Transfer Certificate of Title No. RT-53897 (157455) issued by the Registry of Deeds of Quezon City; that said property is your principal residence as certified by the Barangay Chairman of Barangay Culiat, Quezon City; that on November 19, 1999, Spouses Walfrido A. Lim and Rosita C. Lim and Ma. Elena L. Goco with the consent of her husband, Rolando B. Goco, made and executed a Deed of Absolute Sale whereby the former, Spouses Lim, transferred and conveyed the above-mentioned realty in favor of the latter for and in consideration of the amount of Eight Hundred Forty Two Thousand pesos (P842,000.00); that the entire proceeds from said sale transaction will be utilized by Walfrido A. Lim and Rosita C. Lim in acquiring and/or constructing a new principal residence within eighteen (18) months from the date of the said Deed of Absolute Sale (November 19, 1999) as stated in the Sworn Declaration of Intent executed by the Spouses Walfrido A. Lim and Rosita C. Lim; that in your letter-request dated November 18, 1999, you likewise informed the Commissioner of Internal Revenue of your intention to avail of the benefits provided under Section 24(D)(2) of the Tax Code of 1997; and that in support of your request, you submitted to this Office copies of the following documents: 1) Deed of Absolute Sale; cdlex 2) Transfer Certificate of Title No. RT-53897 (157455); 3) Corresponding Tax Declaration; 4) Sworn Declaration of Intent; and 5) Barangay Certification 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 of disposition through a prescribed return of his 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 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 is exempt from the 6% capital gains tax imposed under Section 24 (D)(1) of the Tax Code of 1997. However, the same is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the gross selling price or fair market value/zonal value of the property whichever is higher.(BIR Ruling No. DA-357-98 dated September 3, 1998). However, this exemption shall be rendered null and void and 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 the sworn declaration and post reporting requirements and all other conditions set forth under 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. prcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)