BIR Ruling [DA-429-99]

July 27, 1999 BIR RULING [DA-429-99] 24 (D) (2) 111-98 Mr. & Mrs. Napoleon M. Policarpio #9 Indigo St., Stella Maris Subd. Maybunga, Pasig City Sir & Madam : This refers to your letter dated June 17, 1999 requesting for exemption from the payment of capital gains tax, the sale of your principal residence pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that you are the registered owner of a parcel of land including improvements thereon consisting of a residential house situated at #9 Indigo St., Stella Maris Subd., Maybunga, Pasig City covered by Transfer Certificate of Title No. PT-89556 issued by the Registry of Deeds of Pasig City; that said property is your principal residence, which fact was confirmed in a Certification dated June 28, 1999 issued by the Punong Barangay of Maybunga, Pasig City; that on June 16, 1999, you sold your said principal residence in favor of Mesdames Paulina A. Santiago and Gina A. Santiago for and in consideration of the amount of One Million Five Hundred Thousand Pesos (P1,500,000.00); that in an Affidavit you executed on June 21, 1999, it is stated therein that you will use the entire proceeds of the said sale to acquire another principal residence within a period not to exceed eighteen (18) months; that you intend to avail of the exemption from the payment of the capital gains tax granted to qualified sellers of real property which, in effect, satisfy the requirement under Section 24(D)(2) of the Tax Code of 1997 of informing the Commissioner of your intention to avail of the exemption provided in said Section; and that in support of your request, you submitted to this Office copies of the following documents: 1. Deed of Absolute Sale; 2. Affidavit dated June 21, 1999 executed by Napoleon M. Policarpio; 3. Transfer Certificate of Title No. PT-89556; 4. Corresponding Tax Declaration; and 5. Certification by the Punong Barangay of Maybunga, Pasig City dated June 28, 1999; 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 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 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 Mesdames Paulina A. Santiago and Gina A. Santiago 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) However, the same is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the gross selling price or fair market value, whichever is higher. HTCESI The Register of Deeds concerned 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. 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, and/or the conditional requirements set forth therein are not complied with, 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 & Enforcement Group)