BIR Ruling [DA-354-98]

July 30, 1998 BIR RULING [DA-354-98] Mrs. Edna G. Baligasa 4 Los Remedios St. Bauan Batangas M a d a m : This refers to your letter dated March 16, 1998 requesting exemption from the payment of capital gains tax on the sale of parcel of land including improvements existing thereon situated at Brgy. 27, Nstra. Sra. de Soledad, Laoag City in favor of the Spouses Sixto R. Ramirez and Mariecon G. Ramirez pursuant to Section 24(D)(2) of the Tax Code of 1997. LLpr It is represented that you are the registered owner of the aforesaid parcel of land with improvements existing thereon covered by Transfer Certificate of Title No. T-18957 issued by the Registry of Deeds of Laoag City with Tax Declaration No. 029-00116; that said real property is your principal residence and that of your family; that on March 13, 1998, you executed a unilateral Deed of Absolute Sale wherein you transferred and conveyed your said residential property in favor of the said Spouses Ramirez for and in consideration of Three Hundred Thousand Pesos (P300,000.00); that you sold your said residential property to buy a lot and house in Batangas City where your husband, Amado Baligasa, has been working since 1990; that you intend to fully utilize the proceeds of said sale in buying/acquiring your new principal residence; that the report of investigation conducted by Resurreccion J. Vea, Revenue Enforcement Officer 1 of Revenue District No. 1, Revenue Region No. 1, Calasiao, Pangasinan disclosed that the house erected on the said parcel of land is roughly finished and was built in 1985 with an original/historical cost of acquisition of P140,000.00, while the said parcel of land was also acquired in 1985 with an actual acquisition cost of P14,740.00 and is presently occupied by the sister-in-law of Mrs. Edna G. Baligasa; and that in support of your request, you submitted to this Office copies of the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title No. T-18957; 3. Corresponding tax declaration; 4. Sworn Declaration of Intent as to the utilization of the proceeds of said sale; 5. Report of investigation conducted by Resurreccion J. Vea, Revenue Enforcement Office I, Revenue District No. 1, Revenue Region No. 1, Calasiao, Pangasinan; and 6. Other pertinent documents. 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 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 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 you have manifested your intention to fully utilize the proceeds of the sale or disposition of your property to buy/acquire another lot and house as your 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 the Spouses Sixto R. Ramirez and Mariecon G. Ramirez is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. (BIR Ruling No. 111-98 dated July 8, 1998) 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. aisadc 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)