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Here’s a continuation of yesterday’s post: Frequently Asked Questions regarding Capital Gains Tax Exemption.
For simplicity, let's refer to the individual claiming the CGT exemption as the ICCE.
Frequently Asked Questions
1. Can the new property be placed under the ICCE’s children’s names?
No. The original PR and the new PR must have the same registered owner(s).
2. What if the new property costs less than the amount received from the sale?
The ICCE must pay CGT on the unutilized portion within 30 days of the original PR’s sale.
Example:
+ Sale price of original PR: ₱20M
+ New PR purchase price: ₱15M
+ Unutilized amount: ₱5M
+ CGT due (6% of ₱5M): ₱300,000 (payable to the BIR within 30 days)
3. What if there are multiple owners, and only some are reinvesting?
Any co-owner not reinvesting must pay CGT upfront. Co-owners purchasing separate properties can still claim CGT exemption, provided:
+ Their new properties are titled under their names.
+ The purchases are completed within 18 months from the sale of the original PR.
4. What happens if the new PR purchase isn’t completed within 18 months?
The BIR will:
+ Order the escrow agent to release the CGT funds to the BIR.
+ Impose penalties from the original PR’s sale date.
In the BIR’s view, failure to meet the deadline is equivalent to non-payment of CGT.
Key Takeaway
To ensure a smooth CGT exemption process, ICCEs should plan their next property purchase before selling their primary residence. Timely execution and proper documentation are crucial to avoiding unnecessary tax liabilities.