Get your taxes done using TurboTax

Yes, it would be shown as a rental property but how you will report it differs from the instructions given above. Here should be the correct method of reporting this to comply with IRS regulations.

1. Go to Federal > Wages & Income > Rental Properties and Royalties (Sch E). 
2. Add a new property. Use the address in India.
3. Key Dates: Enter the date you first started renting it (the "Placed in Service" date). 
4. Final Year Info: Mark that the property was sold in 2025.
5. Income/Expenses: Enter $0 for rent received (since it was vacant while for sale), but enter any final utilities or property taxes you paid.  Don't confuse property taxes with the foreign taxes that you will claim on the sale of the house mentioned later.

Step 2: Set up the Asset & Calculate "Allowable" Depreciation

This part matters most. Enter the value of the house when it became a rental.

1. Go to Assets/Depreciation within that rental. 
2. Add an Asset: Category = "Rental Real Estate Property."
3. Cost Basis: Enter what you originally paid for the house (in USD) + any major improvements.
4. Land Value: You must estimate the value of the land at the time of purchase. Land does not depreciate. (Example: $200k total = $160k building / $40k land).
5. Depreciation Method: For foreign residential property, the IRS requires a 30-year straight-line method (ADS).

Prior Depreciation: Since you never reported it, this will be $0 in your records, but TurboTax will calculate the "Allowable" amount based on your "Placed in Service" date. This "Allowable" amount must be subtracted from your basis, increasing your taxable gain.

Step 3: Report the Sale within the Asset

1. While still in the Asset screen, check the box "This item was sold..." 
2. Enter the Sales Price and Sales Expenses (commissions, etc.) in USD.
3. TurboTax will now generate Form 4797. This form will "recapture" all that depreciation you never actually took and tax it at 25%.

Step 4: Link the Foreign Tax Credit (Form 1116)

1. Now that the gain is on your return, you need to apply the taxes you paid to India.
2. Go to Deductions & Credits > Foreign Tax Credit.
3. Select Passive Income (Gain from a rental sale is passive).
4. Select India.
5. When asked for "Foreign Assets" or "Gross Income," Enter the gross proceeds on the sale.
6. Enter the amount of Foreign Tax levied on the sale of the house when it asks for this information.