SEC. 39. Capital Gains and Losses.

SEC. 39. Capital Gains and Losses. -

(A)  Definitions. - As used in this Title -

(1)   Capital Assets. - The term 'capital assets' means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real property used in trade or business of the taxpayer.

(2)   Net Capital Gain. - The term 'net capital gain' means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges.

(3)   Net Capital Loss. - The term 'net capital loss' means the excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges.

(B)  Percentage Taken into Account - In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net capital gain, net capital loss, and net income.

(1)   One hundred percent (100%) if the capital asset has been held for not more than twelve (12) months; and

(2)   Fifty percent (50%) if the capital asset has been held for more than twelve (12) months;

(C)  Limitation on Capital losses. - Losses from sales or exchange capital assets shall be allowed only to the extent of the gains from such sales or exchanges. If a bank or trust company incorporated under the laws of the Philippines, a substantial part of whose business is the receipt of deposits, sells any bond, debenture, note, or certificate or other evidence of indebtedness issued by any corporation (including one issued by a government or political subdivision thereof), with interest coupons or in registered form, any loss resulting from such sale shall not be subject to the foregoing limitation and shall not be included in determining the applicability of such limitation to other losses.

(D)  Net Capital Loss Carry-Over. - If any taxpayer, other than a corporation, sustains in any taxable year a net capital loss, such loss (in an amount not in excess of the net income for such year) shall be treated in the succeeding taxable year as a loss from the sale or exchange of a capital asset held for not more than twelve (12) months.

(E)   Retirement of Bonds, Etc. - For purposes of this Title, amounts received by the holder upon the retirement of bonds, debentures, notes or certificates or other evidences of indebtedness issued by any corporation (including those issued by a government or political subdivision thereof) with interest coupons or in registered form, shall be considered as amounts received in exchange therefor.

(F)   Gains or losses from Short Sales, Etc. - For purposes of this Title - 

(1)   Gains or losses from short sales of property shall be considered as gains or losses from sales or exchanges of capital assets; and

(2)   Gains or losses attributable to the failure to exercise privileges or options to buy or sell property shall be considered as capital gains or losses.