BIR Ruling [DA-464-98]

October 26, 1998 BIR RULING [DA-464-98] Ms. Lilia D. Galura 1774-B Biak-na-Bato Street Tondo, Manila M a d a m : This refers to your letter dated June 12, 1998 which was referred to this Office by the Revenue District Officer of Revenue District No. 28, requesting exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 9 Palmera Street, Villa Florencia Subdivision, Novaliches, Quezon City in favor of the Republic of the Philippines through the Department of Public Works and Highways pursuant to Section 24 (D)(2) of the Tax Code of 1997. It is represented that your aforesaid residential property with an area of 204 square meters is covered by transfer Certificate of Title No. 299520 issued by the Registry of Deeds of Quezon City and Tax Declaration No. C-121-00104; that the same was partially affected by the construction of Mindanao Avenue Extension Stage II-B; that as a consequence, a Deed of Absolute Sale was executed by and between you and the Republic of the Philippines through the Department of Public Works and Highways wherein you transferred your said property in favor of the Republic of the Philippines for and in consideration of One Million Four Hundred Sixty Eight Thousand Eight Hundred Pesos (P1,468,800.00); that because of said sale of your principal residence you intend to use the entire proceeds thereof to buy or construct a new principal residence within eighteen (18) months from said sale of your principal residence; that with the execution of your Sworn Declaration of Intent on August 11, 1998 you have complied with the requirement of reporting the said sale within the required 30 days period from the date of sale; that with the said sale of your principal residence, your forwarding address shall be at 1774-B Biak-na-Bato Street, Tondo, Manila; and that in support of your request, you submitted to this Office copies of the following documents: 1. Deed of Absolute Sale between you and the Republic of the Philippines thru the Department of Public Works and Highways; 2. Transfer Certificate of Title No. 299520 3. Corresponding Tax Declaration; 4. Sworn Declaration of Intent duly notarized; 5. Barangay Certification that you are a bona-fide residence of No. 9 Palmera Street, Villa Florencia Subdivision Talipapa, Novaliches, Quezon City; 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 sale 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 required; 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 his 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 the Republic of the Philippines through the Department of Public Works and Highways is exempt from the 6% capital gains tax imposed under Section 24 (D)(1) of the Tax Code of 1997. (BIR Ruling No. DA-357-98 dated September 3, 1998). In this connection, you are further advised that in order that you can avail of the exemption from the payment of capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, you should comply with the requirements hereunder mentioned: (1) Sworn Declaration Requirement . Submit a Sworn Declaration of Intent to avail of the tax exemption herein provided which shall be file with the Revenue District Office (RDO) having jurisdiction over the location of your principal residence within thirty (30) days from the date of its sale, exchange or disposition, inclusive of the following: a) A surety bond from a reputable Surety Company, equal to the amount of the capital gains tax otherwise due on the sale, exchange or disposition of your principal residence, conditioned upon forfeiture of such bond, or a portion thereof, in case he fails to utilize in full or in part, as the case may be, the proceeds of sale, exchange or disposition thereof in acquiring or constructing your new principal residence as provided in these Regulations; b) Duly Accomplished Capital Gains Tax Return (BIR Form No. 1706); c) A sworn statement from the Barangay Chairman that your principal residence is located within the jurisdiction of that Barangay and has been your residence as of the date of sale, exchange or disposition thereof; d) A duplicate original copy of the Deed of Conveyance of your Principal Residence; e) Photocopy of the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT), in case of a condominium unit (covering the principal residence sold, exchanged or disposed); and f) Latest Tax Declaration of the said principal residence. (2) Post Reporting Requirement . The proceeds (net of aforesaid expenses of sale, if any) from the sale, exchange or disposition of your principal residence must be fully utilized in acquiring or constructing your new principal residence within eighteen (18) calendar months from the date of its sale, exchange or disposition. In order to show proof that positive action was undertaken to utilize the proceeds for the acquisition or construction of your new principal residence within the 18-month reglementary period, you shall submit to the RDO concerned, within thirty (30) days from the lapse of the said period, the following documents: a) A sworn statement that the total net proceeds from the sale of his old principal residence has been actually utilized in the acquisition or construction of your new principal residence or, if the construction of your new principal residence is still in progress, a sworn statement that such amount shall be fully utilized to procure the necessary materials and pay for the cost of labor and other expenses for the construction thereof; b) A certified statement from your Architect or Engineer, or both, showing the cost of materials and labor for the construction of your new principal residence; c) A certified copy of the Building Permit issued by the Office of the Building Official of the City or Municipality where your new principal residence shall be constructed, as well as photocopies of documents (e.g., building specification plan, construction plans, construction cost estimates) submitted with your application for said permit; and d) In case your new principal residence is acquired by purchase, a duplicate original copy of the Deed of Absolute Sale covering the purchase of your new principal residence. (3) The tax exemption herein granted may be availed of only once every ten (10) years; (4) The historical cost or adjusted basis of your old principal residence sold, exchanged or disposed shall be carried over to the cost basis of your new principal residence; and (5) If there if no full utilization of the proceeds of sale, exchange or disposition of your old principal residence for the acquisition or construction of your new principal residence, you shall be liable for deficiency capital gains tax. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)