BIR Ruling [DA-600-99]

October 8, 1999 BIR RULING [DA-600-99] Mr. Leoncio S. Castillo, Jr. 37 Spinach St., Valle Verde 5 Pasig City S i r : This refers to your letter dated August 6, 1999 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 37 Spinach St., Valle Verde 5, Pasig City covered by Transfer Certificate of Title No. 81707 in favor of Spouses Dennis Patrick N. Tan and Lilibeth T. Tan pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that you are the registered owner of a parcel of land including improvements thereon situated at No. 37 Spinach St., Valle Verde 5, Pasig City; that the said property is your principal residence; that you sold your principal residence on August 6, 1999 in favor of Spouses Dennis Patrick N. Tan and Lilibeth T. Tan with postal address at No. 708 Yulo St., Mandaluyong City for and in consideration of P7,000,000.00; that you are intending to use the proceeds of the said sale to finance your acquisition of your intended new principal residence; and that in support of your request, you submitted to this Office copies of the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title No. 81707; 3. Corresponding tax declaration; 4. Sworn declaration of Intents as to the utilization of the proceeds of said sale; 5. Certification of the Barangay Captain of the place where your sold property is located to the effect that the same is your principal residence prior to the sale thereof; 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 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 the same Code, provided, that the historical cost or adjusted cost basis of the real property sold or disposed shall be carried over 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 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, thereon. cdlex 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 another parcel of land including improvements thereon as your new principal residence within eighteen (18) calendar months reckoned from August 6, 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 Spouses Dennis Patrick N. Tan and Lilibeth T. Tan is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. It is subject however, to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the gross selling price or zonal value of the property sold, whichever is higher. The concerned Register of Deeds is, however, requested to annotate at the back of the 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 as well as 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. (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 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