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Understanding the Process
The law allows an individual to claim CGT exemption when selling their primary residence (PR) and using the proceeds to
purchase a new PR.
For simplicity, let's refer to the individual claiming the CGT exemption as the ICCE.
How It Works
1. Payment to Escrow
When the ICCE sells their PR, the CGT is still computed but not paid directly to the BIR.
Instead, the CGT amount is deposited with an escrow agent (e.g., BPI).
Since buyers typically withhold tax payments (such as CGT) from the seller's proceeds, the ICCE must inform the buyer upfront that they are claiming CGT exemption.
The buyer should then issue a manager’s check payable to the escrow agent instead of the BIR.
2. Escrow Certificate & CAR Processing
Once deposited, the escrow agent issues a certificate confirming receipt of the CGT amount.
The seller submits this certificate to the BIR to process the Certificate Authorizing Registration (CAR) for the property sale.
3. Purchasing a New Primary Residence
After acquiring the new PR, the ICCE must present the new title and tax declaration (under their name) to the BIR as proof of reinvestment.
The BIR will then authorize the escrow agent to release the CGT funds back to the ICCE.
How the BIR Verifies a Primary Residence
The BIR requires supporting documents to confirm that the property sold is indeed the ICCE’s primary residence. These may include:
+ Barangay certificate
+ Registered TIN address
+ Utility bills or other proof of residence
Note: Empty lots and dilapidated houses do not qualify as primary residences. Misrepresentation may lead to disqualification.
Frequently Asked Questions
1. Can the new property be placed under the ICCE’s children’s names?
2. What if the new property costs less than the amount received from the sale?
3. What if there are multiple owners, and only some are reinvesting?
4. What happens if the new PR purchase isn’t completed within 18 months?
Continued in tomorrow's post.