Portion of Proceeds from Sale of Property Used to Buy New Principal Residence, Exempt from 6% Capital Gains Tax

July 27, 1998 BIR RULING NO. 114-98 24 (D) (2)-000-00-114-98 Mr. & Mrs. Stewart C. Cacho Blk. 7, Lot 14 Whispering Palms, Llano Novaliches, Caloocan City S i r : This refers to your letter dated April 17, 1998 requesting for exemption from the payment of capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. prcd You stated in your letter that you sold your property located at No. 5 Marian St., Remmanville, BLS, Paraaque, Metro Manila covered by TCT No. (64164)-121693 issued by the Registry of Deeds of Pasay City, for a total consideration of P600,000.00; that said property had remained a family home/residence until it was sold on March 19, 1998; that you and your wife executed a Sworn Declaration of Intent stating that you used the proceeds of the sale to pay the following, viz: P199,803.54 for the balance of the housing loan from Pag-ibig and P453,100.00 for the new family home situated at Lot 14, Blk. 7, Whispering Palms, Barangay Llano, Caloocan City; and that you want to avail of the tax exemption provided for in Section 24(D)(2) of the Tax Code of 1997 and in support thereof, you submitted to this Office the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title No. -64164- 3. Sworn Declaration of Intent executed by you and your children as to utilization of the proceeds of said sale; 4. Certification by the Barangay Chairman where the property sold is located, to the fact that the you and the members of your family are residents of the place and known in the community; 5. Other pertinent documents. 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 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 provided, still further that the said tax exemption can only be availed of once every ten (10) years. cdll 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) thereon. From the foregoing, it is clear that you have used the proceeds of the sale or disposition of your property to pay the balance of the housing loan and in acquiring a new family residence within the time required by law. However, the portion of the proceeds utilized to pay off the balance of the housing loan pertaining to the property sold shall be subject to the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. Accordingly, since you have complied with all the conditions set forth under Section 24(D)(2) of the same Tax Code, the portion of the proceeds from the sale of your property in the amount P453,100 which was actually used to buy your new principal residence is exempt from the 6% capital gains tax. The concerned Register of Deeds is however, requested to annotate at the back of the subject certificate of title that the tax exemption shall be rendered and null and void and that the entire proceeds of the said sale shall be subject to the capital gains tax and the corresponding penalties thereto in case the seller failed to comply with all the conditions set forth under Section 24(D)(2) 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 shall be disclosed that the facts are different, then this ruling shall be considered null and void. prLL Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue