Question on reporting capital gains on sale of home in India

[MS310]

Dear experts,

I sold my flat in India in 2022. The capital gains tax was calculated and the buyer paid the price less the tax deducted at source (TDS). (The buyer pays that directly to the Indian revenue service.)

In my 2022 taxes, do I report the sale as a regular sale with form 8949 and calculate the capital gains. And then also report the TDS as foreign tax credit (to get benefit from the double-taxation treaty between India-US)?

The complication is that in filing the India tax return in 2023 (for the 2022 FY), the house's valuation and indexation is taken into account and there is a lower actual capital gains calculation and I will receive a tax refund in India as a result of this. Does this figure get reported in the US 2023 return, or should I incorporate the correction in the 2022 return itself?

Thank you!

[pk · Accepted solution]

@MS310 , Having read through your situation ( vis-a-vis indexation of basis in India  in gain computation ),  -- I think I have answered similar before :

 For US tax purposes :

(a) you treat the sale of the asset as if the asset was in the USA / domestic  and compute your capital gain tax.

(b) in the  Deductions & Credit section/tab, you select foreign tax credit

     (1) On form 1116  you enter the total foreign sourced income  i.e.   Asset sales price   less  sales expenses   (including commissions, transfer tax, sales prep etc. etc.  --- not the taxes paid to Govt. of India)  LESS  your Basis  ( Original acquisition  cost  plus cost of improvements ).  This should be the same as your gain on Schedule-D or 8949.   This the amount that is being doubly taxed.

       (2)  On form 1116 you enter the total foreign taxes paid  ( Collected at source ).  Note that this amount should be   the final tax amount  ( otherwise you have to file an amended return to reconcile with the final amount ) .

Note that  your  foreign tax credit  while recognized  US$ for US$, the allowable amount for the tax year is based on a ratio of foreign source income to your world income -- the rest  can be carried back one year  ( again limited by the same ratio ) and forward till quenched 

Does this help or do you need more info on this ?  Is there more I can do for ypou ?

Namaste

pk

[MS310]

Thanks @pk - very helpful explanation!

For some reason, I am unable to navigate to a relevant foreign tax credit entry area through the web interface that will feed into Form 1116. (Only gives me options for mutual funds that are invested abroad and pay foreign taxes.) Any ideas on what may be happening there?

Thx!

[pk]

@MS310 , I am not familiar with the UI ( user interface ) of the on-line version and therefore  am at great disadvantage to help you .  Please consider  contacting  TurboTax support -- they are reputed to quite good at helping with On-line version of the product.  Please accept my humble apologies.

pk

[ylpsads]

@MS310, Iam in the same situation. Can you please let me know how you resolved the issue? 

[pk]

@ylpsads , can you please  tell more of what your situation is  so I can focus my answer to your facts and circumstances.

I will circle back once I hear from you 

pk

[ylpsads]

@pk Thank you

Did not see an option in "deduction & credits" in Turbotax online to enter foreign tax info for 1116. only option i could pick is dividends from 1099-DIV.

Was able to resolve it by 1) removing 1099-DIV, 2) adding foreign tax first and then 3) added 1099-DIV back.

[SG_CA]

Hi

I have an exactly similar situation. I too sold a flat in India in Summer 2023. Please can you advise how you addressed your situation that will be of great help for me. I am sure it will help others too.

Thanks

[rjs]

---

@MS310 wrote:

For some reason, I am unable to navigate to a relevant foreign tax credit entry area through the web interface that will feed into Form 1116.

---

@MS310 

When you said "the web interface," pk and I both understood that to mean TurboTax Online. But you are working on a U.S. tax return for 2022, to report the sale of the flat and TDS paid in 2022. You cannot prepare a 2022 tax return with TurboTax Online. TurboTax Online is only for the current tax year, which is now 2023. To prepare a 2022 tax return you have to use the CD/Download Desktop TurboTax software for 2022.

To prepare Form 1116 in the CD/Download Desktop TurboTax software, go to Federal Taxes > Deductions & Credits. Scroll down to the section "Estimates and Other Taxes Paid." Click the Start button for Foreign Taxes. In my opinion the user interface in the CD/Download Desktop software is much simpler, clearer, and easier to navigate than TurboTax Online.

[Ramesh Aswathnarayana]

Did you guys figure this out?

[pk]

@Ramesh Aswathnarayana , will you please tell more about your situation --- this thread is pretty old .

(a) you a US person ( citizen/ GreenCard / Resident for Tax purposes )  sold a property in India -- when ?

(b) did you pay taxes at source ?

(c) when did you sell the prop . ?   Did you use the [prop as your  main home within the last five  years  ( from the date of sale) -- 730 days of use and  2 years of ownership ?

(d)  Are you single  or file married Joint ?

(e) any other  info on this sale ?  Like how did you acquire the prop ?

 I will circle back once I hear from you 

pk

[star_personal]

I'm as NRI selling home in Star City, Gujarat. I'd like to know if there would be any US tax liability for below transaction? 

	50%	50%
	Head of Family	Spouse	Total
Sales Price	INR     4,500,000.00	INR      4,500,000.00	INR         9,000,000.00
Cost of Purchase  (A)	INR     2,648,350.00	INR      2,648,350.00	INR         5,296,700.00
Stamp Duty  (B)	INR          123,725.00	INR         123,725.00	INR            247,450.00
Documentation Charges  (C)	INR             15,390.00	INR          15,390.00	INR             30,780.00
Electricity Connection Charges (D)	INR             37,500.00	INR          37,500.00	INR             75,000.00
Misc Charges Paid (E)	INR             84,750.00	INR          84,750.00	INR           169,500.00
Purchase Value  (Cost of Purchase and A+B+C+D+E)	INR        2,909,715.00	INR      2,909,715.00	INR         5,819,430.00
Capital Gain (Sales Price - Purchase Value	INR        1,590,285.00	INR   1,590,285.00	INR         3,180,570.00
Tax Payable (14.30% on Capital Gain	INR           227,410.76	INR       227,410.76	INR            454,821.51
TDS Deducted  (14.30% on Sales Price)	INR           643,500.00	INR       643,500.00	INR         1,287,000.00
Indian Tax Refund	INR         (416,089.25)	INR     (416,089.25)	INR          (832,178.49)

[pk]

@star_personal , while I digest the figures you have posted, can you please answer the following :

(a) when did you acquire the asset ---  Is this a case of outright/ private  buy ( i.e. where all the funds were  paid/deposited at   title transfer ) OR  from a developer ( where you pay reservation amount  before construction starts,  and pay the rest as progress amounts or  at transfer of title -- beneficial occupancy ) ?   Also need dates of payment(s).

 I ask because  of possible  exchange rate differences over the buying period needs to be taken into consideration.

(b) For US purposes  do you file  as Married Filing Joint ( MFJ) or Married Fling Separate ( MFS ) ?

(c)   When did you enter the USA and  under what visa ?   Has there been any immigration status adjustment(s) and if so to which?  Ditto for  spouse .

(d)  From the date of completion of purchase and till the date of sale, how was the property used  ( only personal and/or income--rented and if so  from when to when ) ?

(e) Approximate US sourced income for the tax / calendar year ?   Should we assume that your world income ( from all sources and all countries ) consists only of the  Indian sourced  capital gain and US sourced  income ?

 (f) Any other  items one should be aware of ?

 I will circle back once I hear from you 

Namaste ji

pk