Foreign (India) property sale - inherited. What are US federal and state tax implications?

[Engineer101]

I'm an Indian citizen and currently on H-1B in US. My father and mother bought a property in Dec 1997 in India.

My mother passed away in 2022. As my father and mother had 50-50 ownership. Our assumption is that post her death the ownership of her 50% was equally divided between me and my father. So ownership was changed to, father's = 50+ 25 = 75% and for me 25%.

The property was our primary residence until April 2015 and then it was rented on and off from 2015 until Nov 2022. From Nov 2022 it was vacant. We sold the property, agreement date of Aug 2024 for Rs. 2,400K (24L), less than the market price of approx. Rs. 2,9K (29.28L)  as it was tough selling an older property.

This would mean my share based on assumption of 25% is Rs.600K (6L) on the property sale.

We used all the money of Rs. 2,400k (24L) to buy an under construction property in Oct 2024.

What will be the US tax implications for this sale?

1. Is the sale price of Rs. 600K (6L) converted to USD depending on forex rate for property sale date?

2. Is the FMV on inheritance acquired date, i.e., the date when my mother passed away, is used as cost price? If that is so, how to calculate FMV for the property then?

3. Will the cost basis be FMV or 25% of FMV?

4. I was a resident of Michigan in 2024. What would be tax implications for federal and MI?

Since it's a combination of inhertied property and foreign sale, I haven't been able to find answers thst covers both aspects.

[DaveF1006]

Yes, you are responsible for reporting your share of the sale at 25%. The basis of the property is its Fair Market Valuation(FMV) at the time of your mother's death. The capital gain on the sale is the difference between the selling price and the Fair Market Valuation (FMV).  

All amounts reported on your return are reported in USD. This means you would enter the USD conversion rate as it existed on the date of the sale. Use this historical rate conversion converter to determine the conversion rate that existed at the time of your mother's death.

Since you are using FMV at the date of your mother's death, you would not use the cost basis at the time the house was bought. This information is irrelevant.  

According to this, Michigan specifically states that the gains/losses from the sale of real property are taxable in the state in which the property is located. In your case your property is out of state so this gain would not be taxable on your MI return. 

@Engineer101 

[Engineer101]

Thank you for your response. But any idea on how to calculate the FMV on the property from May 2022?

[DaveF1006]

No but there are numerous websites you can visit to find out this information.  We don't recommend any specific websites.  You may research several just to make sure you get an accurate ballpark figure. You may ask the broker who handled the sale for you if they have an idea what the FMV at the date of your mother's death.

@Engineer101