Spouses Ronaldo & Elena Maniego

September 10, 2008 BIR RULING [DA-(I-019) 207-08] Sec. 24 (D) (2); DA 334-98; DA-088-02 Spouses Ronaldo & Elena Maniego Lot 13, Blk. 3, Sierra Monte Mansion La Miranda, Cainta Gentlemen : This refers to your letter August 13, 2008 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 118 Mindanao Avenue Ext., Quezon City pursuant to Section 24 (D) (2) of the Tax Code of 1997, as amended. THESAD It is represented that your family has been a resident of the above address since 1990; that with a growing family, you wanted to have more room and plan to purchase a lot in Sierra Monte Mansion, La Miranda, Cainta, a place which is accessible both on your workplaces; that early in 2003, you offered for sale your residential property located in Mindanao Avenue Ext., Quezon City to the public; that the offers of the prospective buyers were not good enough so you decided to just wait for another year to pass before you seriously consider purchasing the lot you wanted to build your dream house; that in 2004, the owner of the lot you intended to buy informed you that another buyer is interested in the said property, so you were forced to borrow money in order to acquire the said lot; that you bought the lot using your savings and the funds lent to you by your parents and relatives; that in the last quarter of 2005, you started the construction of your dream house; that you continued the construction of the house on a slow pace and by it, you also continued incurring liabilities; that you mortgaged your house in Mindanao Ave. Ext., Quezon City to Metrobank in the amount of P4,500,000.00 just to continue the construction of your house and to pay your debts in the acquisition of the Cainta lot; that you paid your debts little by little until in February, 2008, a religious congregation, the Local Superior of Francescane Figlie De St. Elizabeth, Inc., offered to buy your principal residence; that while you were negotiating the terms of the sale of your house in Mindanao Ave., Quezon City, you managed to obtain a loan from Metrobank in the amount of P4,600,000.00, secured by a mortgage with your above Quezon City property offered as collateral thereto; that by it you managed to pay your creditors, especially the contractors and the suppliers of materials as you are still continuing the finishing works of your new house; that the proceeds from the sale of your principal residence amounting to P2,000,000.00, was used to pay for your loan with Metrobank; and that the document of sale involving the said transfer is yet to be notarized to avoid payment of surcharge and penalties in case your request will not be granted. In view of the foregoing, you are requesting for the issuance of a ruling stating, in effect, that you are qualified to be exempt from the payment of the capital gains tax on the sale of your old principal residence despite the fact that you bought ahead the lot where you are now constructing your new principal residence. In support of your request, you submitted to this Office photocopies of the following documents: 1. Undated Deed of Absolute Sale in favor of the Local Superior of Francescane Figlie De St. Elizabeth, Inc.; 2. Deed of Sale showing the acquisition of the residential lot in Cainta sometime in 2006; 3. Corresponding Transfer Certificates of Title; 4. Tax Declarations; 5. Documents pertaining to the loan we obtained from Metrobank; 6. Documents pertaining to the construction of the new principal residence; caIACE 7. Certification by the Barangay Chairman to the effect that your above Mindanao Avenue property was your principal residence; and 8. 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. 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 the Local Superior of Francescane Figlie De St. Elizabeth, Inc., 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. The foregoing is despite the fact that you acquired ahead the lot where you are now building your new principal residence (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