Ms. Ma. Mercedes C. Borromeo

March 27, 2008 BIR RULING [DA-200-08] S24 (D) (2); DA 334-98 Ms. Ma. Mercedes C. Borromeo c/o Ms. Mircaella F. Johnson No. 12-B Acacia Drive McKinley Hills, Taguig M a d a m : This refers to your letter dated February 7, 2008 requesting for and behalf of your client, Mircaella F. Johnson, exemption from the payment of capital gains tax on the sale of her principal residence situated at Unit No. 3C, Rizal Tower, Rockwell Center, Makati City, covered by Condominium Certificate of Title (CCT) No. 86347 issued by the Registry of Deeds of Makati City, pursuant to Section 24 (D) (2) of the Tax Code of 1997. It is represented that Ms. Johnson has been living at her above residence, together with her family, for about four years since 2003 up to 2006; that with a growing family, she wanted to have more room and plan to purchase a lot in McKinley Hills, Taguig; that in 2006, the market sales for condominium units in Rockwell, Makati City was not active that she had difficulty in selling her above condominium residence; that on the same year, while waiting for a buyer of her condominium unit, Ms. Johnson had already purchased two (2) residential lots in McKinley Hills, Taguig wherein she built her new principal residence using her savings and the funds loaned to her by her relatives; that up to the present she is still paying the purchase price of the lots on installment basis; that she is banking on the proceeds from the sale of her condominium unit to pay for her loan and finish the construction of the house; that on September 3, 2007, Ms. Johnson sold her above residential condominium to Maria Lourdes Barcelon-Locsin, married to Teodoro L. Locsin, for and in consideration of the amount of P18,000,000.00; that Ms. Johnson has already filed for an exemption from the payment of the capital gains tax in RDO No. 49, North Makati, wherein she was required to put up an Escrow Account and pay the documentary stamp tax; that Ms. Johnson, together with the RDO concerned, opened an Escrow Account with the Banco de Oro, in the amount equivalent to the capital gains tax due in the above sale transaction; and that on September 18, 2007, the RDO concerned issued a Certificate Authorizing Registration (CAR) for the above sale transaction; that in view of the change in policy implemented by the Bureau, wherein all request for exemption are now processed in the National Office, you are filing your request for capital gains tax exemption so that the escrow deposit will be released to Ms. Johnson; and that in support of your request, you submitted to this Office photocopies of the following documents: caTESD 1. Copy of the Deed of Absolute Sale in favor of Spouses Maria Lourdes Barcelon-Locsin; 2. Copy of the Contract to Sell showing the acquisition of the lots wherein your new principal residence is built; 3. Copy of the corresponding Condominium Certificate of Title; 4. Copy of the corresponding Tax Declaration; 5. Copy of the Tax Clearance and CAR; and 6. Copy of the Escrow Agreement. 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. 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 Ms. Johnson has already fully utilized the proceeds of the sale or disposition of her property in the acquisition of the land and the construction of her new principal residence as required by law, the proceeds from the sale of her residential condominium in favor of Maria Lourdes Barcelon-Locsin, therefore is exempt from the 6% capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. (BIR Ruling No. DA-334-98 dated July 21, 1998). DIEACH 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