BIR Ruling [DA-334-98]

July 21, 1998 BIR RULING [DA-334-98] Ms. Delia L. Espino St. Catherine Subdivision Brgy. San Isidro Paraaque, Metro Manila M a d a m : This refers to your letter dated May 8, 1998 requesting in effect for exemption from the payment of capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. LLpr It is represented that you and your husband are the absolute owners of a parcel of land covered by Transfer Certificate of Title No. 70062 together with the residential house constructed thereon situated at Paraaque, Metro Manila; that you were able to buy a lot covered by TCT No. 129660 situated near the former; that since your residence can no longer accommodate the increasing number of your family, you decided to construct a new house on your newly acquired lot; that the construction of your new house is still ongoing but you have no more funds to finish your project; that as a result, you decided to sell your old house and use the proceeds thereof to continue/finish the construction of the new house; and that you want to avail of the tax exemption provided for in Section 24(D)(2) of the Tax Code of 1997. 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 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 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)(2) of the Tax Code of 1997. From the foregoing, it is clear that you will use the proceeds of the sale or disposition of your property to continue/finish the construction of your new family residence within the time required by law. Accordingly, since you have complied with all the conditions set forth under Section 24(D)(2) of the Tax Code of 1997, the proceeds from sale of your property is exempt from the 6% capital gains tax. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)