BIR Ruling [DA-618-99]

November 3, 1999 BIR RULING [DA-618-99] Mr. Gaudencio C. Ramos 38 Bagong Pag-asa Street Baclaran, Paraaque City S i r : This refers to your letter dated July 24, 1999 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 38 Bagong Pag-asa, Baclaran, Paraaque City in favor of Ms. Lordeliza B. Hernando 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. 38 Bagong Pag-asa, Baclaran, Paraaque City with an area of 43.60 square meters, more or less, covered by TCT No. 99368; that the said property is your principal residence; that you sold your principal residence on July 22, 1999 in favor of Lordeliza B. Hernando with postal address at 1987 Bagong Pag-asa Street, Baclaran, Paraaque City for and in consideration of the Five Hundred Thousand (P500,000.00) Pesos; that you are intending to use the proceeds to finance the acquisition of your intended new principal residence; that in support of your request, you submitted to this Office copies of the following documents: cdll 1. Deed of Sale; 2. Transfer Certificate of Title No. 99368; 3. Corresponding Tax Declaration; 4. Sworn Declaration of Intent as to the utilization of the proceeds of the said sale 5. Certification of the Barangay Captain of the place where the property sold 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 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 other 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 unauthorized 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 another parcel of land including improvements thereon as your new principal residence within eighteen (18) calendar months reckoned from July 22, 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 Ms. Lordeliza B. Hernando is exempt from the 6% capital gains tax imposed under Section 24(D)(2) of the Tax Code of 1997. However, the said sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. (BIR Ruling) based on the gross selling price or fair market value, whichever is higher. However, this tax exemption shall be rendered null and void and 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 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. DA-604-99 dated October 8, 1999). cdll 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