Jose C. Leynes

August 18, 2009 BIR RULING [DA-(I-029) 461-09] 169-00; 249-00 Jose C. Leynes Ma. Lourdes L. Guillergan 703-A Vicente Madrigal Building 6793 Ayala Avenue Makati City Attention: Atty. Ma. Lourdes L. Guillergan Gentlemen : This refers to your letter dated June 18, 2009 stating that your client, Marcelo N. Naval (Mr. Naval), is the registered owner of a house and lot located at 111 Sto. Domingo Street, Ayala-Alabang Village, Muntinlupa City covered by TCT No. 3381 and with Tax Declaration No. F-009-03280 while the improvement has a floor area of 170.15 square meters and covered by Tax Declaration No. F-009-03281; that the said property is currently being used by him and his family as their principal residence; that the said property was acquired by him by virtue of a Deed of Absolute Sale executed on March 14, 2008 for the sum of P14,500,000.00; and that Mr. Naval proposes to transfer residence and sell the above-mentioned property and used the proceeds thereof to acquire a new principal residence. SCaIcA In connection therewith, you now request for confirmation of your opinion that the sale of the above-mentioned property which is used as principal residence where the proceeds thereof shall be used to acquire another principal residence is exempt from the payment of capital gains tax pursuant to Section 24 (D) (2) of the Tax Code of 1997, as implemented by Revenue Regulations No. 14-2000. In reply thereto, 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. SUCH BEING THE CASE, this Office holds that the proposed sale of your client's principal residence is EXEMPT from the payment of capital gains tax provided that the proceeds of the sale or disposition of the said property shall be fully utilized for the acquisition or construction of your client's new principal residence as required by Section 24 (D) (2) of the Tax Code of 1997 but subject to the documentary stamp tax prescribed in Section 196, supra. SACTIH 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service