Mr. Neofelio M. Del Corro, Jr.

July 18, 2008 BIR RULING [DA-(I-005) 057-08] Sec. 24 (D) (2); DA 334-98; DA-088-02 Mr. Neofelio M. Del Corro, Jr. B-1, L-37, Eaglenest, Southwoods Carmona, Cavite S i r : This refers to your letter January 12, 2007 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 17, Yellowbell St., Green Park Village, Cainta, Rizal pursuant to Section 24 (D) (2) of the Tax Code of 1997. It is represented that your family has been a resident of Green Park Village, Cainta, Rizal since 1985; that your wife has cancer and is regularly undergoing chemotherapy; that her physician advised her to relocate in a pollution free environment; that due to such medical reason, you placed your house in the market for sale in the latter part of 2003 to have funds to acquire a house in a pollution free environment, however, there was no viable offers; that sometime in January 2004, there came an irresistible offer from your broker regarding a residential lot located in Southwoods, Carmona, Cavite, wherein the supposed buyer of The Manila Southwoods Residential Estates back out; that to be able to purchase the said property, you borrowed from Neuftech Phils., Inc. the funds to pay for the price of the aforementioned asset knowing that you can pay off the said loan amount out of the proceeds of the sale of your principal residence; that you proceeded in purchasing the above-mentioned Southwoods residential lot at the price of P2,150,000.00; that you constructed a house in the said property amounting to P5,782,897.00; that in 2007, you were able to find a buyer of your principal residence in Green Park, Cainta, Rizal, which is covered by TCT No. 50439 of the Registry of Deeds of the Province of Rizal, offering the amount of P3,500,000.00; that the deed of sale covering the foregoing sale of your principal residence in favor of Spouses Edward and Helen Grace Villagracia is not dated and not notarized in order to avoid payment of penalties and interest imposed in the delay of payment of taxes as you have the intention to inquire from this Office if the foregoing transaction is covered by the capital gains tax exemption given to taxpayers who dispose of their primary residence in order to acquire or construct a new principal residence within eighteen (18) months from the date of such sale/disposition; that you already applied the proceeds of the above sale of your principal residence to pay for the loan used in paying the Southwoods residential lot and for the construction of your house; and that in support of your request, you submitted to this Office photocopies of the following documents: IcaEDC 1. Undated Deed of Absolute Sale in favor of Spouses Edward and Helen Grace Villagracia; 2. Deed of Sale showing the acquisition of the residential lot in Southwoods in 2004; 3. Corresponding Transfer Certificates of Title; 4. Tax Declarations; 5. Documents pertaining to the loan you obtained; 6. Documents pertaining to the construction of the new principal residence; 7. Sworn Declaration of Intent as to the utilization of the proceeds of the sale of principal residence; 8. Certification by the Barangay Chairman to the effect that your above Green Park property was your principal residence prior to the sale thereof; and 9. Other pertinent documents. In reply, please be informed that pursuant to Section 24 (D) (2) of the Tax Code of 1997, as amended, 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 your 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) (1) of the Tax Code of 1997, thereon. ADHCSE From the foregoing, and since you have already fully utilized the proceeds of the sale or disposition of your property in paying the loans obtained for the acquisition of the land and the construction of your new principal residence as required by law and have notified the Commissioner of the same within the prescribed period, the proceeds from the sale of your property in favor of Spouses Edward and Helen Grace Villagracia, is exempt from the 6% capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, but subject to the documentary stamp tax imposed under Section 196 of the same Code. (BIR Ruling No. DA-334-98 dated July 21, 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 and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service