@mickeydude Namaste ji
I will put my answers to your questions in Italics.
1. When determining cost basis, how do I convert the amounts paid to the builder in INR into USD? Do I have to use the then conversion rates? I got an apartment as gift from my brother, but he originally paid between 2006 and 2008. Where do I get the rates for all those years?
For US tax purposes, when a gift, the basis in the hand of the recipient is the same as that of the donor. Thus it would be the acquisition cost plus cost of any improvements while the donor owned it PLUS cost of any improvements that you did during your ownership. Note that if the property was ever used for income generation then you must recognize depreciation ( per US laws ) for the gain/loss computation.. In your particular case since your brother bought the prop quite sometime ago, you can probably use annual average exchange rate published by the IRS -- or any other published rate. But keep track of which rate you used ( in case of a challenge ) Here is a source for this ---Yearly average rates | OFX (US)
And yes you have to use the rates at that time.
2. I sold the apartment in Jan 2024, so the proceeds needs to be calculated using 2024 conversion rates. Correct? And I got lucky with the timing of the sale, I already reported this sale on my India return.
Since the sale was completed in 2024 , you will have to recognize this sale and gain/loss ( per US laws ) on your 2024 return. If India taxed this sale ( either indexed based or by the new method), that tax may be eligible for Foreign Tax credit ( Form 1116 )
3. Instead of figuring out the older conversion rates, can we use the indexed purchase price and use 2024's conversion rate to determine cost basis? No because your functional currency is US$, you have to convert using the exchange rates around the time of transaction.
4. If I happen to use older rates, the profit is going to differ from what I reported on my India return. If the US happen to compare these returns, the numbers may not match. Is that fine?
The gain loss computation and the tax thereon is going to be per country i.e. US return based on US laws and ITR based on Indian laws. Thus the underlying gain may be very different ( depending on basis computation and the allowable deductions by each jurisdiction ). It is a recognized fact. There should be no worry over this.
Note that for FTC ( Foreign Tax Credit ), the allowable credit for the tax year is the lesser of that paid to India and that imposed by US ) US uses an allocation method based on ratio of foreign source income over world income ).
Is there more I can do for you ?
