BIR Ruling [DA-249-00]

May 19, 2000 BIR RULING [DA-249-00] 24 (D) (2); DA-558-99 Ms. Ursilita S. Reyes 12 Int. Dr. Pilapil St., Kapasigan Pasig City M a d a m : This refers to your letter dated May 31, 2000 requesting in effect 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. AHCETa Documents submitted show that Ursilita S. Reyes, married to Alfonso R. Reyes is the rightful and legal owner of two (2) adjacent residential lots together with the improvements thereon situated at Industria St., Kapasigan, Pasig City; that the aforesaid lots are covered by Transfer Certificates of Title Nos. 21588 and 21589 issued by the Registry of Deeds for Pasig, Metro Manila; that you are a resident of the above-stated properties as certified to by Barangay Captain Alfonso R. Reyes; that on May 7, 1999, you executed a Deed of Absolute Sale in favor of Mr. Armando B. Geronimo Jr. for and in consideration of Six Hundred Eighty Four Thousand Pesos (P684,000.00); that the proceeds from the aforementioned sale will be fully-utilized in the acquisition of another principal residence; that in the same letter, you have likewise notified the Commissioner within thirty (30) days from the date of sale or disposition of your intention to avail of the tax exemption prescribed under Section 24(D)(2) of the Tax Code of 1997; and that in support of your request, you submitted to this office the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificates of Title; 3. Tax Declarations; 4. Affidavit of Undertaking; and 5. Certification from the Barangay Captain where the properties sold are located stating therein that you are a bonafide resident of the said Barangay. In reply, please be informed that pursuant to Section 24(D)(2) of the Tax Code of 1997, as implemented by Revenue Regulations No. 13-99, 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 her intention to avail of the tax exemption thus mentioned, and in 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 it can be gleaned that the capital gains tax exemption can be availed of only in the case of sale of principal residence. You have represented, however, that you are selling two (2) adjacent lots together with the improvements thereon. It is our position therefore that you are entitled only to the exemption on the sale of your principal residence or the particular lot where it is erected. Thus, you are subject to the capital gains tax and documentary stamp tax on the sale of your other lot together with the improvements thereon which is not your principal residence pursuant to Sections 24(D)(1) and 196 of the Tax Code, as amended. Since you have also manifested your intention to fully utilize the proceeds of the sale or disposition of your properties to finance the acquisition of a new principal residence within eighteen (18) calendar months reckoned from May 7, 1999 as required by law and have notified the Commissioner of the same within thirty (30) days from the sale or disposition of your properties, the proceeds from the sale of your house and the parcel of land where the aforesaid house was erected covered by TCT No. 21588 in favor of Mr. Armando B. Geronimo, Jr. is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. Moreover, both transfer are 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 properties, 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. 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, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Acting Assistant Commissioner (Legal Service)