BIR Ruling [DA-495-99]

September 2, 1999 BIR RULING [DA-495-99] Mr. Epifanio B. Fajardo Republic Cement Corporation Compound Bo. Minuyan Norzagaray, Bulacan S i r : This refers to your letter dated March 13, 1999 requesting exemption from the payment of capital gains tax on the sale of your principal residence in favor of Ms. Flora Ong Palao pursuant to Section 24(D)(2) of the Tax Code of 1997. cdll It is represented that you are the registered owner of a parcel of land together with the improvements thereon situated at Lot 1, Blk. 12, Phase V, Pleasant Hills Subdivision, Barangay San Manuel, San Jose del Monte, Bulacan covered by TCT No. T-130439 (M) issued by the Registry of Deeds for Meycauayan Branch (Province of Bulacan); that said property is your principal residence as certified to by OIC-Barangay Captain Lilia G. dela Cruz; that on March 12, 1999, you executed a Deed of Absolute Sale in favor of Ms. Flora Ong Palao for and in consideration of P500,000.00; that the proceeds from the said sale will be fully utilized to 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; 3) Tax Declarations; 4) Sworn Declaration of Undertaking; and 5) Certification from the Punong Barangay where the property sold is located stating therein that you are a resident of the said place. In reply, please be informed that pursuant to Section 24(D)(2) of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, 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 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)(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 finance the construction of a new house as your principal residence within eighteen (18) calendar months reckoned from March 12, 1999 as 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. Flora Ong Palao is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. 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/zonal value of the property whichever is higher. The concerned Register of Deeds is 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. (BIR Ruling No. 114-98 dated July 27, 1998). 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, 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 and Enforcement Group)