Thank you so much for your reply. Very helpful!
I had a couple of follow-up questions -
1. In this case, the current building is being torn down. A new one is being built in its place. Until the new one is built, my wife will get these compensatory rent payments, in lieu of her inability to reside in the building and under the assumption she has to pay for alternate accomodation. Would she be able to claim a US tax exemption for these payments? As I mentioned earlier, the Indian government considers them to be tax-exempt in India.
2. My wife had to incur significant legal costs, when she discussed and signed the redevelopment contract with the builder. If we have to pay tax on the rent payments, how do we handle the legal costs? Would the total rent payments be reduced by the legal costs? Or would the legal costs be added to the total cost basis of the apartment, if and when she sells it?
Thank you once again. I really appreciate your advice.
