BIR Ruling [DA-558-99]

September 28, 1999 BIR RULING [DA-558-99] Mr. Jose L. Lopez 2 Redeemer St., Milton Hills Subdivision New Era, Quezon City S i r : This refers to your letter dated September 6, 1999 requesting in effect for a ruling exempting the sale of your principal residence from the payment of capital gains tax pursuant to Section 24(D)(2) of the Tax Code of 1997. Documents submitted disclosed that Jose L. Lopez, married to Mermita C. Lopez is the registered owner of two (2) adjacent residential lots together with the improvements thereon located at 2 Redeemer St., Milton Hills Subdivision, New Era, Quezon City; that the aforesaid lots are covered by Transfer Certificates of Title Nos. 60495 and 53343 issued by the Registry of Deeds for Quezon City; that you constructed your principal residence on the above-stated parcels of land; that a Certification from Punong Barangay Ricardo O. Ventura states that you are a resident of the said Barangay; that on September 8, 1999, you executed a Deed of Absolute Sale in favor of the Iglesia ni Cristo, represented by its General Auditor, Glicerio B. Santos, Jr. for and in consideration of P5,500,000.00; that the proceeds from the aforementioned sale will be utilized for the acquisition of another residential house; that in the same letter, you have likewise notified the Commissioner within thirty (30) days from the date of sale or disposition 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 the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificates of Title; 3. Tax Declarations; 4. Sworn Declaration of Undertaking; and 5. Certification from the Punong Barangay where the properties sold is situated stating therein that you are a resident of the said Barangay. 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 properties 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)(1) 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 properties to finance the acquisition of a new house as your principal residence within eighteen (18) calendar months reckoned from September 8, 1999 as required by law and have notified the Commissioner of the same within thirty (30) days from the sale or disposition of your properties, the proceeds from the sale of your properties in favor of the Iglesia ni Cristo 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 properties 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 the sworn declaration and post reporting requirements and all the other conditions set forth under Revenue Regulations No. 13-99 dated July 26, 1999 implementing 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)