- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Report Inappropriate Content
Deductions & credits
What kind of taxes? Transfer taxes/fees on the sale of the property are a cost of the sale and deductible, I would expect, just like deed recording fees/stamp fees would be in the US (based on the value of the property not the gain).
Foreign-Income taxes on the gain are not deductible as a cost of sale on your US returns. You can claim an itemized deduction for them. Or you claim a foreign-tax credit (FTC) for some or all of the foreign-income tax paid.
Note that the FTC does not return the foreign tax to you. Rather, it is designed to reduce the US tax on that gain. US capital gains rates are so low that you might or might not have any US tax to offset. But TT will walk you through that.
I can't speak to CA, but it looks like the prior discussions you cited covered that.
Here are some more details:
The FTC on "income from without the US" is granted by I.R.C. 901 and limited by I.R.C. 904 to
total US tax owed times [ income "sourced" in a foreign country / worldwide income]
https://www.law.cornell.edu/uscode/text/26/901
https://www.law.cornell.edu/uscode/text/26/904
One of the things sourced to a foreign country is "gains, profits, and income from the sale or exchange of real property located without the United States." I.R.C. 862(a)(5). https://www.law.cornell.edu/uscode/text/26/862
The US/India Treaty Article 1(3) says that no matter what the treaty says elsewhere (with a few exceptions), the US can tax its citizens on their worldwide income. India can tax your gain by Article 6 or 13 (I think). So even if the Treaty says only India can tax the income because of the location of the property, 1(3) says that doesn't matter. The US can also tax it.
25(1) is what prevents double taxation. It allows the IRC 901 foreign tax credit for US taxed income that is from "without the US."
**Mark the post that answers your question by clicking on "Mark as Best Answer"