Primary Residence Capital Gains Tax Exemption

hello everyone,

this article came about from an associate who had a transaction that was being questioned by an examiner from the Bureau of Internal Revenue.  the issue was whether the couple was qualified to be exempt from paying capital gains tax on the primary residence they were selling ( please be advised that a more detailed article on primary residence exemption can be found in my previous blogs ).   the husband is of filipino descent and married to an american ( 30 year marriage ), wherein the wife has already gotten her permanent residence status quite sometime ago.  the property was bought when they were newly married.   philippine law clearly states the following as taken from the Bureau of Internal Revenue site :

Who are conditionally exempt from the payment of Final Capital Gains Tax?

Natural persons who dispose their principal residence, provided that the following criteria are met:

  • The proceeds of the sale of the principal residence have been fully utilized in acquiring or constructing new principal residence within eighteen (18) calendar months from the date of sale or disposition;
  • The historical cost or adjusted basis of the real property sold or disposed will be carried over to the new principal residence built or acquired;
  • The Commissioner has been duly notified, through a prescribed return, within thirty (30) days from the date of sale or disposition of the person’s intention to avail of the tax exemption;
  • Exemption was availed only once every ten (10) years; and
  • 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 will be subject to Capital Gains Tax.
  • In case of sale/transfer of principal residence, the Buyer/Transferee shall withhold from the seller and shall deduct from the agreed selling price/consideration the 6% capital gains tax which shall be deposited in cash or manager’s check in interest-bearing account with an Authorized Agent Bank (AAB) under an Escrow Agreement between the concerned Revenue District Officer, the Seller and the Transferee, and the AAB to the effect that the amount so deposited, including its interest yield, shall only be released to such Transferor upon certification by the said RDO that the proceeds of the sale/disposition thereof has, in fact, been utilized in the acquisition or construction of the Seller/Transferor’s new principal residence within eighteen (18) calendar months from date of the said sale or disposition. The date of sale or disposition of a property refers to the date of notarization of the document evidencing the transfer of said property. In general, the term “Escrow” means a scroll, writing or deed, delivered by the grantor, promisor or obligor into the hands of a third person, to be held by the latter until the happening of a contingency or performance of a condition, and then by him delivered to the grantee, promise or obligee.

The issue was the definition of “NATURAL PERSON” which the dictionary defines as the following :

In jurisprudence, a natural person is a real human being, as opposed to a legal person, which may be a private (i.e., business entity) or public (i.e., government) organization.

In many cases, fundamental human rights are implicitly granted only to natural persons.

This is the reason why Primary Residence Exemption doesn’t apply to corporations and only to individuals.  The name / s of the individuals on the property being sold must be the same name / s on the property being purchased.  In addition, a natural person is either a Filipino or a Foreigner !

In conclusion, the Primary Residence Exemption was granted to the couple regardless of nationality !

I apologize for the inconsistency of my daily blogs as this is the season where everything just gets really crazy and finding time to do a blog is so difficult.

Here’s wishing y0u all the Best of the Holiday Season and i would also like to take the time to thank you for your continuous support and patronage throughout the years !

May God Bless you All Always ……..


Robert G. Sarmiento Properties
Professional Affiliation :
Real Estate Broker’s Association of the Philippines
President, Greenhills Chapter 2008-2009
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