BIR Ruling No. 035-10

August 27, 2010 BIR RULING NO. 035-10 Espiritu Vitales Espiritu Law Office Unit 801, 8th Floor, Medical Plaza Ortigas San Miguel Ave., Pasig City Attention: Cesar D. Vitales Gentlemen : This refers to your letter dated October 28, 2009 requesting for confirmation of your opinion that your client, Ma. Luisa E. Gonzalez, who sold her principal residence and paid the applicable capital gains tax thereon is exempt from capital gains tax on her subsequent purchase of a principal residence. It is represented that Ma. Luisa E. Gonzalez is the registered owner of that certain property denominated under TCT No. 149345 of the Registry of Deeds of Makati City, which she and her family used as principal residence; that on September 2, 2009, the abovementioned property was sold; and that the representative entrusted with the filing of the necessary arrangements for exemption under Section 24 (D) (2) failed to follow instructions and instead paid the capital gains tax. Hence, you request that the capital gains taxes she paid on the sale of her principal residence be applied or credited to her subsequent purchase of a new principal residence. Your request is denied for lack of legal basis. The sale of a principal residence by a natural person may be exempted from capital gains tax under Section 24 (D) (2) of the National Internal Revenue Code (NIRC), provided that the requirements under Revenue Regulations (RR) No. 13-99, as amended by RR No. 14-2000, have been complied with. Since your client failed to abide by the requirements under the regulations, there is no basis to declare that the sale of her principal residence is exempt from capital gains tax. As a consequence, the payment of capital gains tax cannot be considered as tax erroneously paid which may be recovered pursuant to Sec. 229 of the NIRC. cDSaEH Even assuming, arguendo, that the capital gains tax is erroneously paid, the same may not be credited or applied to your clients subsequent purchase of a new principal residence. The primary reason for this is that capital gains tax on the sale of real property is charged upon the seller. In the event Ms. Gonzalez purchases a new principal residence, it is the seller, and not Ms. Gonzalez, who will be liable to pay capital gains tax. In view of the foregoing, this Office denies your request and rules that the sale of Ms. Gonzalez's principal residence is not exempt from capital gains tax. In addition, the capital gains tax paid thereon may not be applied or credited to her subsequent purchase of a new principal residence. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue