Sps. Leopoldo G. Clapano and Ma. Elizabeth S. Clapano

September 19, 2008 BIR RULING [DA-(I-022) 241-08] 24 (D) (2); DA-019-2006 Sps. Leopoldo G. Clapano and Ma. Elizabeth S. Clapano 5C First Street, Barangay Kapitolyo Pasig City Gentlemen : This refers to your letter dated June 30, 2008 requesting for exemption from the payment of capital gains tax on the sale of your principal residence pursuant to Section 24 (D) (2) of the Tax Code of 1997. It is represented that you are the registered co-owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. 29453 together with the improvements existing thereon located at Lot 25, Block I, Phase I-C, Palmera Homes, Sta. Monica, Novaliches, Quezon City; that you are a bona fide resident of Barangay Sta. Monica, Novaliches, Quezon City as certified by Barangay Captain Elenita I. Balajonda; that on June 3, 2008, you executed a Deed of Absolute Sale transferring in favor of Spouses Leo Manuel O. Leao and Maria Teresa A. Leao the subject properties for the sum of P1,200,000.00; that you used part of the proceeds thereof in the amount of P1,000,000.00 as your downpayment buying a condominium unit which forms part of a project which is at present under construction by Globe Asiatique Realty Holdings Corporation (GARHC) and to be known as GA Tower 2 located at EDSA, Mandaluyong City; that the lump sum purchase price of the aforestated property is P2,810,000.00; and that in support of your request, you have submitted the following documents: (1) Deed of Absolute Sale in favor of Spouses Leo Manuel O. Leao and Maria Teresa A. Leao; aACHDS (2) Photocopies of TCT No. 29453 and the corresponding Tax Declaration; (4) * Certification issued by Barangay Captain Elenita I. Balajonda certifying that the Spouses are bona fide residents of Palmera Homes, Sta. Monica, Novaliches, Quezon City; (5) Sworn Declaration of Intent dated June 25, 2008; (6) Contract to Sell between Spouses Clapano and GARHC dated June 27, 2008 and Official Receipt No. 409991 dated June 6, 2008 in the amount of P1,000,000.00 issued to Spouses Clapano; and (7) Other important 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 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 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. aICcHA 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. From the foregoing, since you have utilized part of the proceeds of the sale in the acquisition of a new condominium unit, and notified the Commissioner of the same with in the period prescribed by law, the proceeds from the sale of your property in the amount of P1,000,000.00 in favor of Spouses Leo Manuel O. Leao and Maria Teresa A. Leao is exempt from the 6% capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, but the sale is subject to the documentary stamp tax imposed under Section 196 of the same Code. In addition, you are subject to the 6% capital gains tax for the unutilized sum of P200,000.00 which forms part of the proceeds of the sale with Spouses Leao using the formula provided by Sec. 4 of Revenue Regulations (RR) No. 14-2000. It shall be understood therefore, that you are exempted from the escrow requirement as required by RR No. 13-99, as amended by RR No. 14-2000. The concerned Register of Deeds is, however, requested to annotate at the back of the subject certificate of title that the subject tax exemption corresponding to the amount utilized for the construction of the new principal residence shall be rendered null and void and shall be subject to the capital gains tax and the corresponding penalties thereto in case the seller further failed to comply with all the conditions set forth under Section 24 (D) (2) of the Tax Code of 1997. (BIR Ruling No. 097-98 dated June 24, 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, then this ruling shall be considered null and void. IaSCTE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service