BIR Ruling [DA-152-00]

March 14, 2000 BIR RULING [DA-152-00] 24 (D) (2); 604-99; DA-152-2000 Mrs. Josefina E. Tamayo No. 87 East Capitol Drive Barangay Kapitolyo Pasig City M a d a m : This refers to your letter dated March 1, 2000 requesting for exemption from the payment of capital gains tax on the sale of your principal residence pursuant to Section 24 (D)(2) of the Tax Code of 1997. It is represented that you are the registered owner of a house and lot located at No. 87 East Capitol Drive, Barangay Kapitolyo, Pasig City covered by Transfer Certificate of Title No. PT-110986 issued by the Registry of Deeds of Pasig, City; that said house and lot served as your principal place of residence, which fact was confirmed in the Barangay Certification issued on February 28, 2000 by the Barangay Captain of Brgy. Kapitolyo, Pasig City certifying that you are a bonafide resident of No. 87 East Capitol Drive, Barangay Kapitolyo, Pasig City; that on March 1, 2000 you executed a Deed of Absolute Sale in favor of the Industrial Electro-Communications, Inc. for and in consideration of the amount of Six Million Two Hundred Sixty Two Thousand Five Hundred Pesos (P6,262,500.00); that in the Affidavit of Undertaking you executed on March 1, 2000, it was stated therein that you will use the entire proceeds of the said sale to acquire another real property to be used as your new principal residence within 18 months from said sale; and that in support of your request, you submitted to this Office copies of the following documents: 1) Barangay Certification that you are a bonafide resident of No. 87 East Capitol Drive, Barangay Kapitolyo, Pasig City; 2) Deed of Absolute Sale executed between you and the Industrial Electro-Communications, Inc.; 3) Tax Declaration No. 009-03616; 4) Transfer Certificate of Title No. PT-110986; and 5) Sworn Declaration of Intent duly notarized. 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 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 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 finance the acquisition of a new house as your principal residence within eighteen (18) calendar months reckoned from February 11, 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 Industrial Electro-Communications, Inc. 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. The entire proceeds of the said sale, however, 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. DA-604-99 dated October 11, 1999) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it shall 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 and Enforcement Group)