BIR Ruling [DA-226-03]

July 17, 2003 BIR RULING [DA-226-03] 24 (D) (2); DA 334-98 Spouses Armando and Edna Salandanan Unit 50 Delnacia Ville Townhouse Talipapa, Novaliches Quezon City S i r : This refers to your letter dated June 20, 2003 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 432 Nangka Street, Camarin, Kalookan City pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that you are the owner of a parcel of land together with the improvements thereon located at No. 432 Nangka Street, Camarin, Kalookan City; that you are a bona fide resident of Kalookan as certified to by the Barangay Captain, Desederio O. Monreal; that on June 20, 2003, a Deed of Absolute Sale was executed by you in favor of Spouses Ermelito and Venus delos Santos involving the aforementioned property for the sum of P695,000.00; that you will use the proceeds thereof in buying or constructing a new principal residence; and that in support of your request, you have submitted the following documents: (1) Deed of Absolute Sale in favor of Spouses Ermelito and Venus delos Santos; (2) Certified true copy of the Transfer Certificate of Title; (3) Certified true copy of the Tax Declaration; (4) Certification issued by Desederio O. Monreal certifying that you are a bona fide resident of Kalookan; (5) Sworn Declaration of Intent; (6) Escrow Agreement; and (7) Such other 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 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. From the foregoing, and since you will fully utilize 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 Spouses Ermelito and Venus delos Santos 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. (BIR Ruling No. DA-334-98 dated July 21, 1998) cASEDC The concerned Register of Deeds is, however, requested to annotate at the back of the subject certificate of title that the subject tax exemption shall be rendered null and void and that 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 all the conditions set forth under Section 24(D)(2) of the Tax Code of 1997. (BIR Ruling No. 097-98 dated June 24, 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, then this ruling shall be considered null and void. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service