Question & AnswerQ&A (BIR REVENUE REGULATIONS NO. 13-99)
The regulations govern the exemption of a citizen or a resident alien individual from capital gains tax on the sale, exchange, or disposition of their principal residence under certain conditions, pursuant to Section 244 in relation to Section 24(D)(2) of the National Internal Revenue Code of 1997.
A 'natural person' refers to a citizen or resident alien individual taxable under Section 24 of the Tax Code. It excludes estates or trusts despite provisions in Section 60 of the Code.
A 'principal residence' is the dwelling house, including the land on which it is situated, where the individual and their family reside. Temporary absences for travel, studies, work abroad, or similar reasons do not interrupt the designation. It must be characterized by permanency, meaning the individual intends to return whenever absent.
'Fully utilized' means the taxpayer has either started constructing their new principal residence or entered into a contract to purchase one within eighteen (18) calendar months from the sale, exchange, or disposition of the old residence, intending to use the entire proceeds from the sale for this purpose. Expenses paid to effect the sale are included in the utilized amount.
The taxpayer must submit a sworn declaration of intent to avail of the exemption within 30 days from the sale, including documents like Capital Gains Tax Return, proof of documentary stamp tax payment, sworn statement from Barangay Chairman, Deed of Conveyance, Transfer Certificate of Title, and latest Tax Declaration. Additionally, the proceeds must be fully utilized within 18 months to acquire or construct a new principal residence, with proof submitted within 30 days after the period.
Only once every ten (10) years.
The taxpayer becomes liable for a deficiency capital gains tax on the unutilized portion. The tax is computed based on the percentage of unutilized proceeds over the gross selling price or fair market value, multiplied by six percent (6%). Interest, surcharge, and penalties apply for late payment.
The unutilized portion of the gross selling price divided by the gross selling price (or fair market value if higher) gives the non-utilization percentage. This percentage is multiplied by the gross selling price (or FMV whichever is higher), then by six percent (6%) to determine the capital gains tax due on the unutilized portion.
Within 30 days after the 18-month period, the taxpayer must submit a sworn statement of utilization, a certified statement from an architect or engineer showing construction costs, a certified copy of the building permit and related documents for new construction, or the Deed of Absolute Sale if the new principal residence was purchased.
If the exchange is for a condominium or land used as a new principal residence, the original owner is exempt from capital gains tax. However, the other party may be subject to capital gains or income tax. If cash or other property is added to the exchange, capital gains tax may be due on the unutilized portion of the total consideration, computed as the difference between total received and given values.
Filing the sworn declaration of intent and required documents with the appropriate Revenue District Office is sufficient for approval and issuance of the CAR or TCL, stating that the transaction is exempt from capital gains tax under Section 24(D)(2) of the Tax Code.
Deficiency capital gains tax must be paid with a 25% surcharge for late payment and 20% delinquency interest per annum calculated from the 31st day after the sale until full payment.
The historical cost of the old principal residence plus additional costs of acquiring the new principal residence, minus the gross selling price (or fair market value if applicable) of the old residence, gives the adjusted cost basis of the new principal residence.
They take effect fifteen (15) days after publication in the Official Gazette or a newspaper of general circulation, with provisions for persons who availed themselves of the exemption from January 1, 1998, to the date of effectivity to comply with documentary requirements within 30 days from effectivity.