BIR Ruling [DA-440-A-98]

September 29, 1998 BIR RULING [DA-440-A-98] Mrs. Redempta Rabe Abadilla Lot 33, Block 48, Lagro Subdivision Novaliches, Quezon City M a d a m : This refers to your letter dated February 20, 1998 requesting for exemption from the payment of capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. You stated in your letter that you sold your property located at Lot 33, Blk. 48, Lagro, Novaliches, Quezon City covered by TCT No. N-147020 issued by the Registry of Deeds of Quezon City, for a total consideration of P820,000.00; that said property had remained a family home/residence until it was sold on March 6, 1998; that you and your children, executed an Affidavit of Undertaking stating that you will use the proceeds of the sale in constructing a new principal residence on another property situated at Lot 32, Blk. 197, North Fairview, Quezon City; that you plan to complete the construction of the residential house within eighteen (18) months from the date of sale; that your purpose in exclusively utilizing the proceeds of the aforesaid sale transaction in the construction of your new residence is to be able for you to avail of the tax exemption provided for in Section 24(D)(2) of the Tax Code of 1997; that in support thereof, you submitted to this Office the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title No. N-147020; 3. Corresponding Tax Declaration; 4. Sworn Declaration/Undertaking by Seller and her children that the proceeds of said sale transaction will be utilized to construct a new principal residence within 18 months from the date of sale (March 6, 1998); 5. Certification by the Barangay Chairman where the property sold is located, to the fact that the you and the members of your family are residents of the place and known in the community; 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 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 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) thereon. From the foregoing, it is clear that your sale or disposition of your property is with the intention to fully utilize the proceeds to construct another principal residence within eighteen (18) calendar months from said sale. Accordingly, the proceeds from such sale is exempt from the 6% capital gains tax provided however, that all the conditions set forth under Section 24(D)(2) of the Tax Code of 1997 are complied with. (BIR Ruling No. 097-98 dated June 24, 1998) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. LLcd Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)