BIR Ruling [DA-335-99]

June 4, 1999 BIR RULING [DA-335-99] Atty. Jesus Clint O. Aranas 545 Carpenter Street Moonwalk II Paraaque City S i r : This refers to your letter dated April 8, 1999 requesting on behalf of your client, Mr. Luisito Martinez for exemption from the payment of capital gains tax on the sale of his principal residence in favor of Messrs. Rigoberto A. Quizon and Raymundo A. Quizon pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that Mr. Luisito Martinez is the registered owner of a parcel of land together with the improvements thereon situated at Liberty Avenue, Cubao, Quezon City covered by TCF No. 304148 issued by the Registry of Deeds for Quezon City; that said property is his principal residence as certified to by Barangay Captain Angelina A. Punzalan; that on May 14, 1999, a Deed of Sale was executed by Mr. Luisito Martinez in favor of Messrs. Rigoberto A. Quizon and Raymundo A. Quizon for and in consideration of P1,055,600.00; 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 Sale; 2) Transfer Certificate of Title; 3) Tax Declarations; 4) Affidavit of Utilization of Proceeds of the sale by the seller; and 5) Certificate of Punong Barangay where the property sold is located, to the fact that Mr. Martinez and the members of his 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 Cod, of 1997, as implemented by Revenue Regulations No. 2-98, 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 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 his 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, and since Mr. Luisito Martinez has manifested his intention to fully utilize the proceeds of the sale or disposition of his property to buy another parcel of land including improvements thereon as his principal residence within eighteen (18) calendar months reckoned from May 14, 1999 as required by law and has notified the Commissioner of the same within thirty (30) days from the sale or disposition of his property, the proceeds from the sale of the said property in favor of Messrs. Rigoberto A. Quizon and Raymundo A. Quizon is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. However, the sale of the aforementioned principal residence by Mr. Luisito Martinez in favor of Messrs. Rigoberto A. Quizon and Raymundo A. Quizon is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the consideration or on its fair market value determined in accordance with Section 6(E) of the said Code, whichever is higher. The concerned Register of Deeds is 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. 114-98 dated July 27, 1998) LLphil 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group