BIR Ruling [DA-540-98]

December 1, 1998 BIR RULING [DA-540-98] Atty. Anthony D. Bengzon Quisumbing Torres & Evangelista 11th Floor Pacific Star Building Makati Ave. cor. Sen. Gil J. Puyat Ave. Makati City 1200 S i r : This refers to your letter dated July 13, 1998 requesting, on behalf of Augusto D. Bengzon, for exemption from the payment of capital gains tax imposed under Section 24(D)(2) of the Tax Code of 1997. cdll You stated in your letter that your brother, Augusto D. Bengzon, sold his condominium units located at 1211 and 1212 Alpha Salcedo Condominium, H.V. de la Costa Street, Salcedo Village, Makati City covered by Condominium Certificates of Title (CCT) Nos. 42384 and 42385 issued by the Register of Deeds of Makati City and Parking Space No. 3P-01 located on the 3rd Floor of the same Condominium covered by CCT No. 42383 also issued by the Register of Deeds of Makati City in favor of Ms. Margaretha M. Marasigan for a total consideration of P3,000,000.00; that prior to the sale, your brother, Augusto D. Bengzon, had been using the said condominium units as his principal residence as certified by Brgy. Captain Constancia Q. Lichauco of Barangay Bel-Air, Makati City until it was sold on June 15, 1998; that he intends to utilize the proceeds of the said sale in buying or constructing his new principal residence within eighteen (18) months from the date of sale; that his purpose in exclusively utilizing the proceeds of the aforesaid sale transaction in the construction of his new residence is to be able for him to avail of the tax exemption provided for in Section 24(D)(2) of the Tax Code of 1997; that in support thereof, you submitted to this Office the following documents: 1. Deed of Absolute Sale; 2. Condominium Certificate of Title Nos. 42384 and 42385; 3. Corresponding Tax Declaration; 4. Sworn Declaration of Intent of Mr. Augusto D. Bengzon, that the proceeds of the said sale transaction will be utilized to construct his new principal residence within 18 months from the date of sale (June 15, 1998); 5. Certification by the Barangay Chairman where the property sold is located, to the fact that Augusto D. Bengzon has used the said condominium units as his principal residence prior to its sale; and 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 his 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 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) thereon. From the foregoing, it is clear that the sale or disposition of your brother's property is with the intention to fully utilize the proceeds to construct another principal residence within eighteen (18) calendar months from said sale. Accordingly, the proceeds from such sale is exempt from the 6% capital gains tax provided however, that all the conditions set forth under Section 24(D)(2) of the Tax Code of 1997 are complied with. (BIR Ruling No. 097-98 dated June 24, 1998) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. LLcd Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)