Mr. Romeo L. Ebarle

December 9, 2008 BIR RULING [DA-(I-041) 510-08] Sec. 24 (D) (2); DA 334-98; DA-088-02 Mr. Romeo L. Ebarle No. 16, Guatemala BLS Paraaque City Sir : This refers to your letter November 26, 2008 requesting for exemption from the payment of capital gains tax on the sale of the principal residence of Mrs. Celia Dayrit-Reyes and Ms. Cecilia D. Reyes situated at JM Delgado St., BF Homes, Quezon City pursuant to Section 24 (D) (2) of the Tax Code of 1997, as amended. DEICHc It is represented that on February 15, 2008, Mrs. Celia Dayrit-Reyes and Ms. Cecilia D. Reyes sold their above principal residence covered by Transfer Certificate of Title (TCT) No. RT-63211 (179183) to Ms. Daisy Ebarle-Witham as evidenced by the Deed of Absolute Sale executed on even date; that the title of the parcel of land wherein the principal residence was built is registered under the name of Mrs. Celia Dayrit-Reyes as it is her paraphernal property while the improvement built thereon is co-owned by her with her daughter, Ms. Cecilia D. Reyes; that the proceeds of the above sale of principal residence was used by Mrs. Celia Dayrit-Reyes and Ms. Cecilia D. Reyes in acquiring their new principal residence on February 22, 2008, located at Unit 518, Katipunan Avenue, Loyola Heights, Quezon City, purchased through Ms. Cecilia D. Reyes from Ms. Mary Ann Reyes Luz, by virtue of a Special Power of Attorney (SPA) dated February 21, 2008; that on March 12, 2008, Mrs. Celia Dayrit-Reyes executed a Letter of Intent to avail of the provision of Section 24 (D) (1) of the Tax Code of 1997, as amended, particularly, on the tax exemption on the sale of principal residence; that it was filed before BIR RDO No. 28, Novaliches, Quezon City; and that since the new principal residence acquired was registered only in the name of the daughter of Mrs. Celia Dayrit-Reyes, Cecilia D. Reyes, by virtue of the SPA executed for the purpose of purchasing the new principal residence, you were advised by the revenue officer in-charge to obtain an opinion whether the same qualifies for the exemption under Section 24 (D) (1) of the Tax Code. In support of your request, you submitted to this Office photocopies of the following documents: 1. Deed of Absolute Sale in favor of Ms. Daisy Ebarle-Witham dated February 15, 2008; 2. Deed of Absolute Sale showing the acquisition of the new principal residence from Ms. Mary Ann Reyes Luz on February 22, 2008; 3. Corresponding Transfer Certificates of Title; 4. Tax Declarations; 5. Special Power of Attorney in favor of Cecilia D. Reyes dated February 21, 2008; 6. Certification by the Barangay Chairman to the effect that the property sold by Mrs. Celia Dayrit-Reyes was her principal residence; and 7. 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 Mrs. Celia Dayrit-Reyes and Ms. Cecilia D. Reyes have already fully utilized the proceeds of the sale or disposition of their property in the acquisition of their 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 their property in favor of Ms. Daisy Ebarle-Witham, 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. (BIR Ruling No. DA-334-98 dated July 21, 1998). The fact that the new principal residence purchased from Ms. Mary Ann Reyes Luz is registered under the name of Ms. Cecilia D. Reyes only does not affect the tax exempt status of the sale of the old principal residence to Ms. Daisy Ebarle-Witham. 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