Col. Avelino Concepcion Co

September 10, 2009 BIR RULING [DA-(I-033) 530-09] 24 (D) (2) & 56; DA 334-98; DA-088-02 Col. Avelino Concepcion Co No. 45, San Francisco Street Kapitolyo, Pasig City Sir : This refers to your letter June 14, 2009 requesting for exemption from the payment of capital gains tax on the sale of your principal residence situated at No. 45, San Francisco St., Kapitolyo, Pasig City pursuant to Section 24 (D) (2) of the Tax Code of 1997, as amended. Documents submitted disclose that on December 11, 2008, you sold the house and lot you co-owned with your children located in No. 45, San Francisco St., Kapitolyo, Pasig City in the amount of P4,000,000.00 to A.V. Castillo & Sons, Inc.; that you paid the 6% capital gains tax due thereon, in the amount of P246,000.00 last December 16, 2008; that in January 2009, you decided to use the proceeds of the sale of your principal residence for the construction of a new one which will be constructed in the lot adjacent to the lot where your old principal residence was constructed; that on June 4, 2009, you filed a request for refund of the capital gains tax you paid on the sale of your principal residence; and that you were advised to get first a ruling exempting the sale of your principal residence from the capital gains tax, hence, this request. In support of your request, you submitted photocopies of the following documents: CSIDEc 1. Deed of Absolute Sale in favor of A.V. Castillo & Sons, Inc.; 2. Corresponding Transfer Certificates of Title; 3. Tax Declarations; 4. Documents pertaining to the construction of the new principal residence; 5. Certification by the Barangay Chairman to the effect that your above property was your principal residence; and 6. Other pertinent documents. In reply, please be informed that under 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. 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. On the other hand, paragraph (3) of Section 56 of the Tax Code of 1997, as amended, provides viz. : SEC. 56. Payment and Assessment of Income Tax for Individuals and Corporations. (A) Payment of Tax. CTEacH (1) . . . (2) . . . (3) Payment of Capital Gains Tax. The total amount of tax imposed and prescribed under Sections 24(C) , 24(D) , 27(E)(2) , 28(A)(8)(c) and 28(B)(5) (sic) 1 shall be paid on the date the return prescribed therefor is filed by the person liable thereto: Provided, That if the seller submits proof of his intention to avail himself of the benefit of exemption of capital gains under existing special laws, no such payments shall be required: Provided, further, That in case of failure to qualify for exemption under such special laws and implementing rules and regulations, the tax due on the gains realized from the original transaction shall immediately become due and payable, and subject to the penalties prescribed under applicable provisions of this Code: Provided, finally, That if the seller, having paid the tax, submits proof of intent within six (6) months from the registration of the document transferring the real property, he shall be entitled to a refund of such tax upon verification of his compliance with the requirements for such exemption ." (Emphasis provided) From the foregoing, and since you have already submitted proof of intent to avail the exemption provided under Section 24 (D) (2) of the Tax Code of 1997, as amended, within the prescribed period, and having fully utilized the proceeds of the sale or disposition of your old principal residence in 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 A.V. Castillo & Sons, Inc., therefore, is exempt from the 6% capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. (BIR Ruling No. DA-334-98 dated July 21, 1998). Accordingly, you are entitled to a refund of the capital gains tax you paid for the sale of your above principal residence. 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 Footnotes 1. The correct Section numbers should read as Sections 24 (C), 24 (D), 25 (A) (3), 25 (B), 27 (D) (2), 27 (D) (5), 28 (A) (7) (c), 28 (B) (1) and 28 (B) (5) (c).