Sale of Principal Residence

Just a short post about the capital gains tax exemption on the sale of your primary residence.  What this means is, you're selling your main/primary residence, and moving to another residence that will become your new primary residence.  In this case, you get a capital gains tax exemption.  From the BIR's website:

• 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 (BIR) 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 other words, if you're selling your primary residence, and you intend to use the proceeds to buy or construct a new primary residence, you have to let the BIR know within 30 days of the sale of your intention to do so.  Additionally, the money from the sale of your primary residence has to be utilized in full within 18 months or else anything that is left over will be subject to the capital gains tax.  You can only avail of this exemption once every 10 years, and once you sell your old primary residence, the 6% capital gains tax will have to be deposited first in an authorized partner bank of the BIR and will only be released to you once it is proven that the full proceeds of the sale (less the 6% of course) was in fact used to buy the new primary residence.

Just making sure everybody is aware of this so you can save some money that you would otherwise pay to the BIR.

That's it pancit.

Jon