Computation of the Capital Gains Tax in Cases of Foreclosure Sale

September 16, 1988 BIR RULING NO. 455-88 21 (e) 398-88 455-88 Gentlemen : This refers to your letter dated June 9, 1988 requesting clarification as to the correct basis for the computation of the capital gains tax in cases of foreclosure sale; and whether or not the computation made by the Revenue District Officer of Balanga, Bataan is correct. cdt It is represented that sometime last year, based on the Sheriff's sale dated May 28, 1987, you submitted for consolidation of title in the name of the bank the foreclosed properties of Spouses Tomas and Zenaida Dumpit and the St. Jude Construction Corporation located at Bataan; that as a prerequisite for the consolidation of title, you secured a certificate of payment of capital gains tax from the Office of the Revenue District Officer of Balanga, Bataan; and that in determining the capital gains tax, said Revenue District Officer is utilizing as basis the amount of the loan. In reply, please be informed that in cases where real property classified as capital assets is acquired by a bank, finance and insurance company thru mortgage foreclosure sale, the correct basis for the computation of the 5% capital gains tax imposed under Section 21(a) of the Tax Code, as amended, shall be the selling price (bid price) shown in the mortgage foreclosure sale. (Sheriff's Certificate of Sale) (Par. 3.1, Revenue Memorandum Order No. 29-86; BIR Ruling No. 398-88) The amount of loan secured by the mortgage is not considered as basis in computing said taxes (BIR Ruling No. 406-87). This modifies BIR Ruling No. 406-87 insofar as it rules that the 5% capital gains tax is based on the bid price or the fair market value of the property, whichever is the higher amount. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner