Sale of Principal Residence

“Principal Residence” is the family home of the individual taxpayer. It refers to the dwelling house, including the land on which it is situated, wherein an individual including his family resides as a permanent dwelling, or whenever absent, wherein the said individual intends to return (RR 14-2000). It should be certified by the Barangay Chairman over the place, or the Building Administrator is the residence is a condominium or the individual taxpayer’s address as indicated in his latest tax return.

RULES:

·         General Rule: Subject to 6% capital gain tax based on the selling price or zonal value, whichever is higher

·         Exception: If the proceeds are fully utilized in acquiring or constructing a new principal residence within 18 months from the date  of disposition subject to the following conditions:

a.       The proceeds is fully utilized in acquiring or constructing a new principal within 18 calendar months from the date of disposition.

b.      The historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired.

c.       The Commissions shall have been duly notified by the taxpayer within 30 days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption.

d.      The tax exemption can only be availed of once every 10 years.

e.      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.

*The taxable portion is computed as follows:

                                                               

Taxable amount = Utilized Portion / Gross selling price x Gross selling price or zonal value at the time of sale, whichever is higher.

f.        The tax on the unutilized portion shall be paid within 30 days after the expiration of the 18-month period.

COST BASIS OF THE NEW PRINCIPAL RESIDENCE

-         Sales proceeds fully utilized - The cost of the new principal residence is the same as the cost of the old residence sold, irrespective of the actual amount of the sales proceeds.

-         Sales proceeds partially utilized – If the sales proceeds were just partly utilized, the basis of the new principal residence would be:

Basis = Utilized portion / Gross S. P. x Basis of the old R. res.

-    Acquisition costs exceed the entire sales proceeds – The basis of the new principal residence would comprise the following:

a.       Cost or basis of the old principal residence sold, plus

b.      Additional cost in acquiring the new principal residence.