BIR Ruling [DA-298-00]

August 7, 2000 BIR RULING [DA-298-00] Mesdames Nilda and Sharina S. Mendoza 97-B West Capitol Drive Barrio Kapitolyo Pasig City Mesdames : This refers to your letter dated July 27, 2000 requesting for exemption from the payment of capital gains tax on the sale of your principal residence in favor of Michelle Dinglasan pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that you are the absolute and registered owners of a parcel of land together with the improvements thereon situated at Lot 3-B, Barrio Kapitolyo, Pasig City covered by TCT No. 113606 issued by the Registry of Deeds for Pasig City containing an area of 75 square meters; that on July 3, 2000, a Deed of Absolute Sale was executed by you in favor of Michelle Dinglasan for and in consideration of P1,150,000.00; that the said property is your principal residence as certified to by the Barangay Captain Milagros G. Ilustre; that the proceeds from the said sale will be fully utilized to buy and/or construct a new principal residence and that in support of your request, you submitted to this Office the following documents: 1) Deed of Absolute Sale; 2) Transfer Certificate of Title; 3) Tax Declarations; DHAcET 4) Sworn Declaration of Undertaking; and 5) Certificate of Barangay Captain where the property sold is located, to the fact that you and the members of your family are residents of the place and known in the community. 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 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) 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 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 in favor of Michelle Dinglasan, is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. However, the said sale shall be subject to the documentary stamp tax imposed under Section 196 of the same Code based on the consideration or current fair market value as determined in accordance with Section 6(E) of the said Code. (BIR Ruling No. DA-357-98 dated September 3, 1998). 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 fails 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, this ruling shall be considered null and void. DHEaTS Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group