Gain Derived from Sale or Disposition of Property Leased by Mortgagors Not Subject to Final Capital Gains Tax

August 27, 1985 BIR RULING NO. 146-85 34-h 045-84 146-85 Gentlemen : This refers to your letter dated February 23, 1984 requesting a ruling on behalf of your client, Atty. J.C. Cordova that his acquisition for foreclosure of a mortgage of a parcel of land be exempt from the capital gains tax the property being an ordinary asset. It is represented that your client, as mortgagee of a parcel of land situated at Scout Bayuran, Quezon City and covered by Transfer Certificate of Title No. 256496 of the Register of Deeds of Quezon City acquired said property in an extra-judicial foreclosure; that at the time the property was mortgaged to your client, the same was held for lease by the mortgagors; and that the Register of Deeds is requiring a capital gains tax return of the mortgagors. In reply, I have the honor to inform you that since the property in question was being leased by the mortgagors, it is not considered a capital asset and therefore, the gain derived by them on account of the sale or disposition of the property is not subject to the final capital gains tax prescribed by Section 34(h) of the Tax Code as amended by Batas Pambansa Blg. 37 but to the ordinary income tax rates prescribed by Section 21(b) of the Tax Code, as amended by B.P. Blg. 135. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner