BIR Ruling [DA-401-00]

November 21, 2000 BIR RULING [DA-401-00] Ms. Segundina S. Coloma C/o Maries Village, Marcos Highway Mayamot, Antipolo City M a d a m : This refers to your letter dated October 2, 2000 requesting on behalf of Spouses Esteban and Maria Sunga, for exemption from the payment of capital gains tax on the sale of their principal residence in favor of Veronica G. Martinez pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that Spouses Esteban and Maria Sunga are the absolute and registered owner of two (2) adjacent parcels of land together with the improvements thereon situated at Maries Village II, Barangay Mayamot, Antipolo City covered by TCT Nos. 198561 and 198562 issued by the Registry of Deeds for Marikina respectively containing an area of 46 and 121 square meters; that on September 5, 2000, a Deed of Absolute Sale was executed by Spouses Esteban and Maria Sunga in favor of Veronica G. Martinez for and in consideration of P1,370,000.00; that the said property is your principal residence as certified to by the Punong Barangay Prudencio M. Aquino; 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:; aEDCAH 3) Tax Declarations; 4) Sworn Declaration of Undertaking: and 5) Certificate of Punong Barangay 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)(l) of the Tax Code of 1997. From the foregoing, and since Spouses Esteban and Maria Sunga have manifested their intention to fully utilize the proceeds of the sale or disposition of their 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 their property, the proceeds from the sale of their property in favor of Veronica G. Martinez, 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. TASCDI 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, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group