BIR Ruling [DA-679-99]

December 10, 1999 BIR RULING [DA-679-99] Ms . Editha H. Unlao 630 Guerrero Street Mandaluyong City S i r : This refers to your letter dated October 11, 1999 requesting for exemption from the payment of capital gains tax on the sale of a parcel of land with improvements thereon, situated at Mandaluyong City which is being used as a principal residence pursuant to Section 24(D)(2) of the Tax Code of 1997. llcd It is represented that you are the mother and legal guardian of Mary Ellen Iryl H. Unlao, Erwin H. Unlao and Emmanuel Ivan H. Unlao who are the registered owners equivalent to sixty percent (60%) of a parcel of land together with improvements thereon, situated at Mandaluyong City and covered by TCT No. 14522 issued by the Registry of Deeds of Mandaluyong City which they acquired by inheritance from their late father; that the property is being utilized as the family's principal residence; that the said property was sold on September 28, 1999 in favor of Domingo E. Unlao for and in consideration of One Million Four Hundred Twenty Eight Thousand (P1,428,000.00) Pesos; that the proceeds of the sale will be used exclusively for the construction of your new principal residence situated at Block 8, Lot 31, Villa Carolina Subdivision, Tunasan, Muntinlupa; 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. 14522; 3. Corresponding Tax Declaration; 4. Sworn Declaration of Intent as to the utilization of the proceeds of 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 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 his intention to avail of the tax exemption thus mentioned, and which can only be availed once every ten (10) years. llcd 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 manifested your intention to fully utilize the proceeds of the sale or disposition of the subject property to buy another parcel of land including improvements thereon as the new principal residence within eighteen (18) calendar months reckoned from September 28, 1999 as required by law and you have notified the Commissioner of the same within thirty (30) days from the sale or disposition of the subject property equivalent to the sixty percent (60%) portion which is owned by your children, the proceeds from the sale of the subject property in favor of Mr. Domingo E. Unlao 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 based on the gross selling price or fair market value, whichever is higher. The entire proceeds of the said sale, however, 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. (BIR Ruling No. DA-604-99 dated October 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, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)