Pursuant to Section 24(D)(2) of the Tax Code of 1997, sale or disposition of principal residence by natural persons may be exempt from the capital gains tax imposed under Section 24 (D)(1) of the same Code, if the proceeds of the sale is fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of sale or disposition. The historical cost or adjusted cost basis of the real property sold or disposed should be carried over to the new principal residence built or acquired, and the BIR Commissioner shall be notified by the taxpayer within thirty (30) days from the date of sale or disposition through the prescribed return of the seller's intention to avail of the tax exemption. The privilege can only be availed of once every (10) years.

If there is no full utilization of the proceeds of sale or disposition, a portion of the gain shall be subject to capital gains tax. The taxable portion shall be computed by multiplying the gross selling price or fair market value at the time of sale, whichever is higher, by the proportion of the unutilized amount of the selling price.

The concerned Register of Deeds shall annotate at the back of the certificate of title that the tax exemption shall be rendered null and void and that the entire proceeds of the said sale shall be subject to the capital gains tax and the corresponding penalties in case the seller fails to comply with all the conditions for the exemption (BIR Ruling DA 054-03, February 21, 2003)

(Punongbayan & Araullo)