Marichu A. Villanueva

June 16, 2009 BIR RULING [DA-(I-019) 298-09] Sec. 24 (D) (2); DA 334-98; DA-088-02 Marichu A. Villanueva 17 Armando Dalisay Street BF Homes Phase 3 Paraaque City Madam : This refers to your letter dated April 1, 2009 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at Block 2B Lot 11 CH Woodsrow Phase 3, Manuyo Dos, Las Pias City pursuant to Section 24 (D) (2) of the Tax Code of 1997. prcd It is represented that you have been a resident of Woodsrow Phase 3, Manuyo Dos, Las Pias City since 1997; that in 2006, you contemplated to transfer to a bigger house to provide space for your growing household; that sometime in 2007, there came an irresistible offer to purchase a foreclosed property (house and lot) in BF Homes Paraaque from Liberty Savings Bank; that to finance partly the purchase, you offered your principal residence for sale; that the eventual buyer, Mr. Filbert F. Flores III, immediately expressed his intention to buy your principal residence; and that because of your familiarity with Mr. Flores and to ensure a steady source of funds to finance the purchase of your new residence, you agreed to execute a Contract to Sell in his favor on March 10, 2007. It is further represented that based on this Contract to Sell, the transfer of the title over the lot where the principal residence is situated is subject to the condition that a valid and genuine Letter of Guarantee will be released to Mr. Flores by the Home Development Mutual Fund (HDMF); that in the meantime, you entered into contract with Liberty Savings Bank for the sale of the property in BF Homes in June 2007 using funds collectively sourced from Mr. Flores' downpayment, your personal savings and the money lent to you by your relatives; that it took Mr. Flores almost two years to complete the documents and comply with the requirement of HDMF; that it was only in January 2009 that he was able to secure the requisite Letter of Guarantee; that on March 31, 2009, you and Mr. Flores finally executed a Deed of Absolute Sale over the said property; and that the proceeds of the sale in the amount of P1,300,000.00 were used to pay off the personal loans you incurred in acquiring your new residence. In view of the foregoing, you are requesting for the issuance of a ruling stating, in effect, that the sale of your principal residence is qualified to be exempt from the payment of the capital gains tax despite the fact that you bought ahead the property which became your new principal residence. In support of your request, you submitted to this Office the following documents: 1. Contract to Sell dated March 10, 2007; 2. Deed of Sale showing the acquisition of the property in BF Homes in 2007; 3. Corresponding Transfer Certificates of Title; 4. Tax Declarations; 5. Documents pertaining to the construction of the new principal residence; 6. Sworn Declaration of Intent as to the utilization of the proceeds of the sale of principal residence; cACEHI 7. Certification by the Barangay Chairman to the effect that above Las Pias property was your principal residence prior to the sale thereof; 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 your new principal residence as required by law and has notified the Commissioner of the same within the prescribed period, the proceeds from the sale of your property 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. This is despite the fact that you acquired ahead the property which is now your new principal residence (BIR Ruling No. DA-334-98 dated July 21, 1998) . SCETHa 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