Tax Consequence of the Exchange of the Real Property

April 1, 1987 BIR RULING NO. 088-87 21 (e) 000-00 088-87 M a d a m : This refers to your letter dated March 18, 1987 requesting a ruling on the tax consequence of the exchange of the real property owned by you and your sister with that of the property of your brother. It is represented that you and your sister, Milagros Florentino, were the owners of 5/9 and 2/9 respectively of an individual property; that Nestor E. Florentino, your brother, was the owner of 2/9 of another undivided property; that by mutual consent, you and your sister exchanged your aggregate shares with that of Nestor Florentino; that as a result thereof, you and your sister received the 2/9 shares of Nestor Florentino in the undivided property while he, in turn, received 7/9 in the other undivided property. adc Based on the foregoing facts, you and your sister Milagros Florentino are subject to capital gains tax at the rate of 5% based on the fair market value of your combined 7/9 shares in the undivided property; whereas Nestor Florentino is likewise subject to the 5% capital gains tax based on the fair market value of his 2/9 shares in the other undivided property, pursuant to Section 21(e) of the National Internal Revenue Code, as amended by Executive Order No. 37. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner