Background for person under consideration:
- Came to the US in August 2021 on F1 visa
- In 2021, 2022 and 2023, filed returns as a non-resident for tax purposes because was on F1 visa (OPT or STEM)
- Finally in Feb 2024 switched to O1 work visa, and since he crosses the substantial presence test for 2024 because of being on this work visa for >183 days in 2024 itself, choosing to file taxes as a resident for tax purposes for the whole year.
- In 2023, had some income in India due to the sale of some mutual funds in India. Declared those truthfully on the tax software (Sprintax). This did not affect his federal return because form 1040-NR doesn't tax foreign income for non-residents. This declaration did affect CA state return (reduced his tax credit/rebate) which is also fine because CA does tax total income.
In 2024, as mentioned above, filing as a US resident (form 1040).
There is profit of approx. USD 6200 from Sale of Mutual Funds in India. The breakdown of these is below.
Chunk 1 was bought in January 2021 for INR 500000 (USD 6856.85 as of that day)
Sold in Feb 2024 for INR 735858 (USD 8872.09 as of that day)
Profit is INR 235858 (USD 2843.69 as of sold date)
Chunk 2 was bought in Oct, 2021 for INR 500000 (USD 6704.90 as of that day)
Sold in Nov, 2024 for INR 791648 (USD 9379.84 as of that day)
Profit is INR 291648 (USD 3455.59 as of sold date)
Total profit in 2024 was INR 527506 (USD 6166 as as conversion rate at end of year)
The questions we have are the following:
- Is he required to declare this India income while filing his federal and CA tax returns?
- If the answer to both is yes, how do we do that in TurboTax? Which forms need to be filled? Exactly which fields/forms will reflect this income? As you can see, the income/profit is around $6200, the assets have crossed $10000 at some point in the year (February probably), but the assets have never crossed $25000. The answers online include conflicting opinions on whether to declare this as ordinary income like US stocks with no 1099-B, declare it as miscellaneous income, declare this as PFIC, fill form 8621, and so on.
- Also, how exactly does the conversion INR to USD take place - should we convert them as above on the day, and then take the difference, or we take the difference in INR, then convert it to USD? The second approach sounds more logical, because I never actually transferred money from the US to India or vice versa ever. The investment source was also in India, and the sale money is also gonna be there.
- Lastly, taxes on Chunk 1 in India are already paid while filing taxes in June 2024 for FY 2023-24. The taxes on chunk 2 will be filed in May/June 2025. Is there a way to get credit for those taxes in our US return (like a double taxation avoidance treaty)? And is the path to do that simple, or is it simpler to just pay incremental taxes without getting credit for the India tax?
Wanna do what is correct. Would appreciate it if we can get this opinion from a U.S. CPA or tax expert who is a subject matter expert and has the relevant knowledge & experience on this matter.
