Request for Exemption from Payment of Capital Gains Tax on Sale of Principal Residence to the Rep. of the Phil.

March 30, 1999 BIR RULING NO. 040-99 24 (D) (2)-000-00-040-99 Ms. Eufemia Lazaro 28 Pepit St., Villilia Village Talipapa, Novaliches Quezon City M a d a m : This refers to your letter February 16, 1998 requesting exemption from the payment of capital gains tax on the sale of your principal residence situated in Tatalon St., Ugong, Valenzuela, Metro Manila covered by Tax Declaration No. C-025-07460 and Transfer Certificate of Title No. B-49660 in favor of the Republic of the Philippines thru the Department of Public Works and Highways pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that your aforesaid residential property was partially affected by the construction of Mindanao Avenue Extension Stage II-C; that as a consequence, on February 16, 1998, a Deed of Absolute Sale was executed by and between you and the Republic of the Philippines wherein you transferred and conveyed your said residential property in favor of the Republic of the Philippines through the Department of Public Works and Highways for and in consideration of Six Million Four Hundred Ten Thousand Pesos (P6,410,000.00); that because of said sale of your principal residence, you are now contemplating on securing another property for the same purpose; that you intend to fully utilize the proceeds of said sale in buying another lot for the construction of your new principal residence; and that in support of your request, you submitted to this office copies of the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title No. B-49660; 3. Corresponding tax declaration; 4. Sworn Declaration of Intent as to the utilization of the proceeds of said sale; 5. Certification of the Barangay Captain of the place where your property sold is located to the effect that the same is your principal residence prior to the sale thereof; and 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 their 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 her intention to avail of the tax exemption thus mentioned, and in 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)(2) of the Tax Code of 1997, thereon. From the foregoing, and since you have manifested your intention to fully utilize the proceeds of the sale or disposition of your property to buy another parcel of land where you will construct your new principal residence within the time required by law and have notified the Commissioner of the same within thirty (30) days from the sale or disposition of your property, the proceeds from the sale of your property in favor of the Republic of the Philippines through the Department of Public Works and Highways is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. 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, this ruling shall be considered null and void. prcd Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue