BIR Ruling [DA-692-99]

December 16, 1999 BIR RULING [DA-692-99] Sec. 24 (D) (2) 114-98 DA-692-99 R . S . Bernaldo & Associates Unit 1810 Cityland Condominium 10 Tower I, 6815 Ayala Avenue cor. H.V. dela Costa Ext., Makati City Attention: Atty . Rosario S . Bernaldo Managing Partner Gentlemen : This refers to your letter dated June 21, 1999 requesting confirmation of your opinion that the sale of principal residence by your client, Spouses David and Epifania Gutierrez (Spouses Gutierrez), is exempt from capital gains tax pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that Spouses Gutierrez are the registered owners of a parcel of land together with the improvements thereon situated at 325 Country Club Drive, Ayala Alabang, Muntinlupa covered by Transfer Certificate of Title No. 155629 issued by the Registry of Deeds of Muntinlupa; that said property is their principal residence as certified to by Barangay Captain Oscar W. Antiquera; that on May 24, 1999, a Deed of Absolute Sale was executed by the Spouses Gutierrez in favor of Spouses Cesare Augusto and Jean Marie Syjuco; that the proceeds from the said sale will be used in acquiring/constructing a new principal residence and that in support of your request, you submitted to this Office the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title; 3. Tax Declarations; 4. Sworn Declaration of Undertaking; and 5. Certification of Barangay Captain where the property sold is located, to the fact that the Spouses Gutierrez and the members of their family are residents of the place and known in the community. 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 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 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. From the foregoing, and since you have manifested your intention to fully utilize the proceeds of the sale or disposition of their property to buy another parcel of land including improvements thereon as their principal residence within eighteen (18) calendar months reckoned from May 24, 1999 as required by law and have notified the Commissioner of the same within thirty (30) days from the sale or disposition of their property, the proceeds from the sale of said property in favor of Spouses Cesare Augusto and Jean Marie Syjuco is exempt from the 6% capital gains tax imposed under Section 24(D)(1) 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 all the conditions set forth under Section 3 of 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. cdlex Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)