BIR Ruling [DA-342-00]

September 11, 2000 BIR RULING [DA-342-00] S24 (D) (2); 114-98 Sps. Danilo B. Malabonga and Maria Isabel T. Malabonga No. 3 Paris Street, Ciudad Grande Executive Village Ortigas Avenue, Rosario, Pasig City, Metro Manila Gentlemen : This refers to your letter dated May 20, 2000 requesting for exemption from the payment of capital gains tax on the sale of your principal residence No. 3 Paris Street, Ciudad Grande Executive Village, Ortigas Avenue, Rosario, Pasig City pursuant to Section 24(D)(2) of the Tax Code of 1997. Documents show that aforesaid residential property with an area of 150 sq. m. is covered by TCT No. 94595 issued by the Registry of Deeds of Pasig City, Metro Manila; that a certification was issued by the Office of the Barangay Captain of Barangay Rosario, Pasig City to the effect, that the property abovementioned is your principal residence; that you sold the said property to Maria Esperanza de los Santos Atilano and Emmanuel Jose de los Santos Atilano, both of minor age, represented by their widowed mother and legal guardian, Yolanda de los Santos Atilano, for and in consideration of the amount of Php850,000.00; that the proceeds of said sale will be fully utilized to acquire a new principal residence within eighteen (18) months from the date of the sale; and that in support of your request, you submitted to this Office, photocopies of the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title; 3. Tax Declaration; 4. Certification of Barangay Captain; and 5. Sworn Declaration of Intent. 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)(1) of the Tax Code of 1997, thereon. 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 Maria Esperanza de los Santos Atilano and Emmanuel Jose de los Santos Atilano, both of minor age, represented by their widowed mother, Yolanda de los Santos Atilano, 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-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 you 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. Moreover, in view of the fact that the buyers herein are both minors, it is recommended that before the Certificate Authorizing Registration is issued, an investigation be conducted to determine the source of the funds used in buying the subject property, for purposes of assessment of donor's tax against the donor-mother. 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. (BIR Ruling No. 114-98 dated July 27, 1998) Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group