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

[venkyd]

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

[pk · Accepted solution]

(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

pk

[venkyd]

Thank you PK. 

[punjun2019]

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?

PJ

[pk]

@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 ?

[punjun2019]

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?

[DaveF1006]

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.

[punjun2019]

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..

[punjun2019]

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 ..

[DianeW777]

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 

[pk]

@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 ?

[punjun2019]

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?

[pk]

@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 ?