@punjun2019 following up from my colleague @DianeW777 's post and just expanding a bit ( to be sure that we are all on the same page )
(a) While it is general practice often in India to buy a property ( under construction by developer ) by paying progress payments and the final amount for beneficial occupancy -- the total by that time is the basis for acquisition. To this you still have to add all the payments required to make the place habitable ( whether you call it improvement or not ). There are also transfer taxes etc. that you must pay and sometime fees / commission. All these amounts are part of your acquisition cost. I know this is very different from the experience in the USA.
(b) For sale of the property ( i.e. when dis pose off the asset ) and assuming that you have used it ONLY for personal usage, the gain/loss computation for US purposes is based on US laws -- no indexation ( it does not matter whether you used indexation or the new methos for your Indian ITR ).
(c) For the question on whether to use Foreign Tax Credit or Deduction, please see @DianeW777 answer . Just note however
1.for 1116 the limit of allowable credit is the lesser of actual paid to India and US tax on the same gross foreign income -- so the best you will get is the credit equal to US tax ( allocated );
2. for deduction ( while using itemized deduction -- Schedule-A -- because the foreign tax is viewed as SALT ( Sate and local taxes ), the US$10,000 comes in to play.
Is there more one of us can do for you ?
