BIR Ruling [DA-519-99]

May 7, 1999 BIR RULING [DA-519-99] Ms. Lilia L. Ong Berri St., Santa Rosa Village Don Jose, Sta. Rosa Laguna M a d a m : This refers to your letter dated May 11, 1999 requesting in effect for a ruling exempting the sale of your principal residence from the payment of the capital gains tax pursuant to Section 24(D)(2) of the Tax Code of 1997. Documents submitted show that you are the absolute and registered owner of a residential house and lot containing an area of One Hundred Thirty Two (132) square meters situated at Berri St., Santa Rosa Village, Don Jose, Sta. Rosa, Laguna covered by Transfer Certificate of Title No. T-171836 issued by the Registry of Deeds of Sta. Cruz, Laguna; that the above-described property is your principal residence, which fact was certified by the Barangay Chairman of Brgy. Don Jose, Santa Rosa, Laguna; that on July 5, 1999, you sold your said property in favor of Jorge S. Austria for and in consideration of the amount of P400,000.00; that you intend to use the proceeds of said sale of your principal residence in buying/acquiring your new housing unit for your own family use or as your new principal residence; that in the same letter, you have likewise informed the Commissioner of your intention to avail of the tax exemption prescribed under Section 24(D)(2) of the Tax Code of 1997; and that in support of your request, you submitted to this Office copies of the following documents: 1. Affidavit in lieu of a Sworn Declaration; 2. Transfer Certificate of Title No. T-171836; 3. Corresponding Tax Declaration; 4. Deed of Absolute Sale executed by and between you and Jorge S. Austria wherein you sold your principal residence; and 5. Barangay Certification issued by the Barangay Chairman of Brgy. Don Jose certifying that you are a homeowner of Santa Rosa Village II, Sta. Rosa, Laguna. 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 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. 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 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 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). However, the said sale shall be subject to the documentary stamp tax imposed under Sec. 196 of the Tax Code of 1997 based on the gross selling price, fair market value or zonal valuation whichever is higher. 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. (BIR Ruling No. DA-385-99 dated July 8, 1999) 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 & Enforcement Group)