BIR Ruling [DA-489-98]

November 16, 1998 BIR RULING [DA-489-98] Mr. Jose Paulo P. Lorenzo 1505 Medical Plaza Makati Amorsolo cor. Dela Rosa Legaspi Village, Makati City S i r : This refers to your letter dated August 27, 1998 requesting for a ruling that the sale of your principal residence is exempt from the payment of capital gains tax pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that you are the registered and lawful owner of a residential condominium unit located at Unit B-1404, The Ritz Towers, 6725 Ayala Avenue, Makati City covered by Condominium Certificate of Title No. 5-11751/T-91 issued by the Registry of Deeds of Makati City; that said condominium unit served as your principal place of residence until you sold the same last August 4, 1998 in favor of Ms. Teresita H. Reyes; that a provision in the Deed of Absolute Sale gives you the right to stay in the Condominium Unit for two (2) months after July 31, 1998; that you intend to use this two (2) months period to scout around and to look for a new principal residence that will also fully utilize the proceeds of the said sale to acquire the said new principal residence; and that in support of your request, you submitted to this Office copies of the following documents: 1. Condominium Certificate of Title No. 5-11751/T-91; 2. Deed of Absolute Sale executed by and between you and Ms. Teresita H. Reyes; 3. Your Taxpayer Records Update; 4. Your Community Tax Certificate; and 5. Certification from the Barangay Captain certifying that your principal residence is located within the barangay. 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. cdta 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 sail 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 Ms. Teresita H. Reyes 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 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 setforth therein are not complied with, then this ruling shall be considered null and void. aisadc Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)