Liability for Capital Gains Tax Resulting from Disposition of Properties and Acquisition by Bank thru Foreclosure Proceedings

August 8, 1985 BIR RULING NO. 120-85 34 (h) 000-00 120-85 M a d a m : This refers to your letter dated May 30, 1985 and its enclosures requesting a ruling whether you and your father are liable for the payment of the capital gains tax imposed by Section 34(h) of the Tax Code, as implemented by Revenue Regulations No. 8-79. It appears that your residential house and a residential land owned by your father, Mr. Genaro Milano, were mortgaged with the Rural Bank of Hilongos; that the said properties were acquired by the bank through foreclosure sale sometime in 1982; and that on November 14 and September 24, 1984, you and your father reacquired the said residential house and the residential land, respectively, form the bank, as evidenced by the Deeds of Absolute Sale enclosed in your letter. It appears also that the bank acquired the property under the Final Deeds of Sale in 1983, obviously, after the expiration of the one-year redemption period from foreclosure. From the foregoing facts, you and your father, as debtors and mortgagors, are liable for the payment of the capital gains tax resulting from the disposition of the properties and the acquisition thereof by the bank thru foreclosure proceedings. The liability, however, exists if the proceeds of the loan exceed the cost of the properties mortgaged . (See Revenue Memorandum Order No. 33-81). For this reason, this case has been referred to our Regional Office at Tacloban City for necessary investigation to determine whether you and your father are liable for the capital gains tax on the above transaction. In case you and your father are found to be liable, this Office will allow this registration of the title to the property from the bank to you and your father only upon payment of the taxes ascertained to be due. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner