topic how to report real estate sales in india on us income tax return in Deductions & credits

how to report real estate sales in india on us income tax return

venkyd — Sat, 18 Jan 2025 02:10:20 GMT

Hello!

I sold few properties in India between April 1, 2024 and January 15 2025. These will be reported in the Indian Income Tax Return to be filed before June 30, 2025.

Which year's tax return do I report them in the USA? Do I report the 2024 India sales in the 2024 US tax return and then the 2025 India sales in the 2025 US tax return? Or do I report all 2024 and 2025 India sales in the 2025 US tax return?

Please advise.

Thanks

Venky

Re: how to report real estate sales in india on us income tax return

pk — Mon, 27 Jan 2025 18:41:03 GMT

(a) US taxes being based generally on Calendar year, your world income ( assuming you are a US person -- citizen/GreenCard / Resident for tax purposes) for the US Tax year needs to be recognized. Thus if the first property was sold ( sale completed / closed ) during any day of 2024 , then US purposes you report the disposal on your 2024 tax return.

(b) Note that your loss/gain computation is per US tax laws ( there is no indexing of basis as in India ).

(c) If and when your Indian tax is settled , you have to allocate the tax that was paid on the first property ( 2024). Only then can you take advantage of foreign tax credit. If you need help on this , let me know and I can go over this aspect.

(5) The property sold in 2025, will be similarly reported/recognized on the 2025 tax return ( filed in 2026 ).

Is there more I can do for you ?

@venkyd Namaste ji

Re: how to report real estate sales in india on us income tax return

venkyd — Mon, 20 Jan 2025 16:31:38 GMT

Thank you PK.

Re: how to report real estate sales in india on us income tax return

punjun2019 — Tue, 18 Mar 2025 06:38:58 GMT

Hi,

Could u pls advise what is considered as "Sale Proceeds" for reporting foreign property sale in India and where to account for TDS in Turbotax while reporting this property sale?

Re: how to report real estate sales in india on us income tax return

pk — Tue, 18 Mar 2025 18:41:20 GMT

@punjun2019 , Namaste ji

For US tax purposes :

(a) Your basis in the property is your acquisition cost ( actual price you paid + any commissions etc. that you were required to pay, costs to make the place habitable -- electricity / water sewer connections etc. ) PLUS cost of any improvements over the period of ownership.

(b) Depreciation must be recognized , whether taken or not -- if the property was used for income generation / rented out etc. Accumulated Depreciation is the sum of all allowable depreciation during period of rental usage -- it is not material whether this was recognizes/used or not.

(c) Adjusted Basis is Basis LESS Accumulated Depreciation and is used for purposes of computing gain / loss when the asset is disposed of.

(d) Sales Proceeds is Sales Price LESS allowable sales expenses ( such as repairs prior and for purposes of sales, sales commissions, title insurance , transfer tax etc. -- all costs that are purely for purpose of the effecting the sale / transfer of the asset ).

(e) The gain on the sale/ disposition of the asset is Sales Proceeds LESS adjusted Basis.

For ITR, your gain/loss computation is different than the above US version. The TDS is an estimated tax withholding . It will count as Foreign Taxes paid , just as the Gain per US rules would count as Foreign Source income ( capital or otherwise ). It is best ( will prevent need for amended return ) to file the US tax return recognizing the foreign source capital gain ONLY after the Indian ITR has been settled. You would generally report the Foreign Source Gain and the Foreign Taxes paid on form 1116 ( Foreign Tax Credit , under Deductions and Credits tab ).

Does this help ? Or did I miss interpret your question about property sale in India ?

Is there more I can do for you ?

Re: how to report real estate sales in india on us income tax return

punjun2019 — Wed, 19 Mar 2025 05:24:35 GMT

Thanks PK, this is really great..

Just couple of follow up Questions, if payments were made over a 10 year period, and Indian ITR has been filed now,

1) would the cost basis be after indexation and all which has been used to calculate gain for ITR purpose..

2) The TDS (paid at higher rate) was deducted in previous year and later on when ITR was filed in 2024, it was adjusted so I assume the "Foreign Taxes paid" would be the ultimately the Tax that was paid (Lower than the TDS paid).. is this correct?

Re: how to report real estate sales in india on us income tax return

DaveF1006 — Thu, 20 Mar 2025 15:00:24 GMT

No. The cost basis is strictly based on what PK has mentioned in his previous post without regard to indexation. Yes, you would claim a foreign tax credit for the amount that remained after you were refunded for the excess TDS amount.

Re: how to report real estate sales in india on us income tax return

punjun2019 — Mon, 24 Mar 2025 21:19:15 GMT

Thanks for the answer..

Just to be clear, if the property purchase prices was paid over the years , to calculate cost basis indexation (as noted in Indian ITR to calculate gain would not be considered) and only the payments made over the years would constitute the cost basis ?

and secondly, which option is advisable to claim foreign tax credit 1)itemized or2) Credit deduction..

Re: how to report real estate sales in india on us income tax return

punjun2019 — Tue, 25 Mar 2025 00:37:57 GMT

One more follow up, in turbotax while trying to claim foreign tax credit to report foreign taxes paid ( for a property sale in India (which has been included in Wages and Income section) I am asked "Have you already reported all of your foreign income and, if applicable, foreign taxes paid on interest, dividends or Schedules K-1?" -what does this mean in relation to this property transaction ..

Re: how to report real estate sales in india on us income tax return

DianeW777 — Tue, 25 Mar 2025 14:07:48 GMT

Yes, only actual cost paid for the properties would be allowed as your cost of the properties (initial purchase price, acquisition cost and capital improvements over the years).

It depends on your tax situation whether the deduction or credit will work out best. Try both ways, the choose the method that provides the best results.

If you have completed the tax in India, and you have included the sale(s) in your India tax return, then you answer 'Yes' it has been reported.

Where do I enter the foreign tax credit (Form 1116) or deduction?

@punjun2019

Re: how to report real estate sales in india on us income tax return

pk — Tue, 25 Mar 2025 15:53:08 GMT

@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 ).

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 ?

Re: how to report real estate sales in india on us income tax return

punjun2019 — Tue, 25 Mar 2025 23:28:53 GMT

You all have been wonderful to shed so much of light which I have found difficult to get even with Turbotax experts on phone calls..

If I may ask, , I also read that you dont get foreign tax credit for CA return and u shall add the credit u r getting for "Foreign tax paid" in Federal return (same amount) in Income (adjustment to income section) in CA return (CA 540 Form)..

Is this correct understanding?

Re: how to report real estate sales in india on us income tax return

pk — Tue, 25 Mar 2025 23:36:39 GMT

@punjun2019 the "double taxation " clause and indeed the tax treaties are between US federal tax authority and the "other contracting " country. US States do not recognize these treaties -- some have specific agreements with foreign countries ( e.g. NYS and MI having tax agreements with Canada ). Thus California will indeed give you no credit for taxes paid to India and will tax you on world income ( as a resident of CA ).

Does this answer your query ?

Re: how to report real estate sales in india on us income tax return

punjun2019 — Wed, 26 Mar 2025 05:24:30 GMT

Yeah, so essentially you add income from property sale as adjustment in CA return in (CA 540 Form)..right?

Re: how to report real estate sales in india on us income tax return

mickeydude — Fri, 28 Mar 2025 20:36:56 GMT

@pk Thanks for your detailed explanation. Here are my follow-up questions.

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?

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.

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?

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?

Thank you.

Re: how to report real estate sales in india on us income tax return

pk — Sat, 29 Mar 2025 01:33:19 GMT

@mickeydude Namaste ji

I will put my answers to your questions in Italics.

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.

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 ?

Re: how to report real estate sales in india on us income tax return

mickeydude — Sun, 30 Mar 2025 08:17:15 GMT

Thank you @pk for your explanation. I will go ahead with your method.

Re: how to report real estate sales in india on us income tax return

mickeydude — Mon, 31 Mar 2025 23:48:48 GMT

I have entered all my capital gains and added Form 1116 to compute the foreign tax credit, but TT is carrying about 80% of the tax I paid in India forward to next years. Will I be able to claim this credit in the future years even if I do not have any income from India? Any easy formula to calculate this credit going forward? Or to see how many years it takes to recoup the whole credit?

Thanks @pk

Re: how to report real estate sales in india on us income tax return

AmyC — Tue, 01 Apr 2025 00:07:20 GMT

1.Yes, the credit is based on foreign income over total income. Foreign tax credit can be carried back one year or carried forward up to 10 years so you want to keep track of your credits and which year is used. See Topic no. 856, Foreign tax credit.

2. This credit can only go against foreign income. You may income from other investments - like a brokerage.

3. The Form 1116, Foreign Tax Credit (Individual, Estate, or Trust) page 2, part III, line 10 covers carryforward and carryback. It also has calculating the credit which varies each year based on your foreign income.

Re: how to report real estate sales in india on us income tax return

mickeydude — Tue, 01 Apr 2025 00:57:26 GMT

Thanks for your reply @AmyC . The problem is, any time I make money in India, I need to pay taxes there. There won't be any scenario where I make money there and pay no taxes there. So technically I do not have any way to get these credits. Correct? And after 10 years, these credit forfeited.