BIR Ruling [DA-502-99]

September 3, 1999 BIR RULING [DA-502-99] Spouses Arthur C. Lacanlale and Amelia Q. Lacanlale 608 Palawan Street Makati City Gentlemen : This refers to your undated letter requesting in effect for exemption from the payment of capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. cdlex It is represented that you are the registered owners of a house and lot located at 608 Palawan St., Bo. Pitogo, Makati City consisting of One Hundred Twenty Three (123) square meters, more or less, covered by Original Certificate of Title No. 393 issued by the Registry of Deeds for Makati; that you executed a Deed of Absolute Sale over the above-mentioned properties in favor of Lea I. Bacal for the sum of Seven Hundred Thousand Pesos (P700,000.00); that you are going to use the proceeds of the sale to construct a new residential house; and that you intend to complete the construction within eighteen (18) months from the date of sale of your property. 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, 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, it is clear that you will use the proceeds of the sale or disposition of your property to purchase a new principal residence within one (1) year or within the period allowed by law. Accordingly, since you have complied with all the conditions set forth under Section 24(D)(2) of the Tax Code of 1997, the proceeds from sale of your property is exempt from the 6% capital gains tax. However, the said sale 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. The concerned Register of Deeds 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, then this ruling shall be considered null and void. cdll Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)