Sale of Property in India

[ksh2025]

Hello,

I am a resident of Washington State.  In October 2024, I have sold a property in India which I owned 50% and my mother who is a resident Indian owned 50%.  The property was bought 16 years back and since the capital gains calculated in India considers an inflation index due to which the gains calculated are on lower side as compared to the US The buyer had deducted the TDS before paying the final amount. 

I had bought the flat 16 years back with my mother being the co-owner. The capital gains calculated in India considers an inflation index due to which the gains calculated will be lower than the TDS deducted, which means I am expecting refund on TDS deducted during sale of property in my 2025-26 Tax return in India as the capital gain on sale of property will be almost zero.

In that case, do I still need to pay capital gains tax in US and do we consider indexing rule while calculating capital gains tax in US for sale of property in India?

[pk]

@ksh2025 , Namaste ji.

(a)  when did you enter the USA and which visa ?

(b) when did you complete the sale of the condo in India ?

(c)  do you have any earnings in the USA and if  so ,  ball park figure, please?

(d)  What was your Acquistion cost for the  prop., cost of any improvements , how did you use it ,, how much did you sell it for  --- I need ball park figures.

Generally , if you are /were a US person ( Citizen/GreenCard/ Resident for tax purposes ) at the time of the sale , then  you would be subject to world income tax, including  any gains from sale of assets in India.   US does not use  indexing of basis ( like India does ), and the gain may be taxed  partly at marginal rate or at ca[pital rate ( depending on exact facts and circumstances ).

I will circle back once I hear from you  -- you can also PM me  if you are un-comfortable sharing details -- just NO PII  ( Personally Identifiable Information ) please.

[AmeliesUncle]

Indexing and TDS has nothing to do with US taxes, so they don't affect your US tax return.

After converting the purchase price and sales price to US dollars, if there is a gain you will need to report that gain on your US tax return.

If you have a mortgage on the property or if the property has been used as a rental property, I highly suggest that you go to a tax professional that is experienced with US tax from international sources.

Don't forget FBAR and FATCA forms, if they apply.  If you have not been filing those in the past (if they apply), I highly recommend going to a tax professional that is experienced with correcting those prior missed forms.

[jkbasak]

I have a followup question, does this mean tds need to deducted from actual sale price to report net sale price in us tax return? 

[pk]

@jkbasak , for US tax purposes ,

(a) you treat a foreign asset  alienation/sale  just like a domestic asset sale.  The gain/loss computation  uses                                 1.    Sales Proceeds ( =Sales Price  LESS sales expenses such as preparation  for sales expenses, transfer tax, title work cost,   commission etc. )

                        2.  Adjusted Basis  ( =  Acquisition cost + cost of any improvements over the  holding period  LESS  accumulated allowable depreciation )

                        3. Period of holding,.

(b)    If there is gain per US rules, then the portion of the gain caused by accumulated depreciation is  treated as ordinary gain ( taxed  at your marginal rate  -- recovery ) and the rest is eligible for capital gain tax treatment.

(c)  For Foreign tax credit  ( reducing the impact of the same income being taxed by both taxing authorities and as per Tax treaty between  US and the "other country"), the foreign source  income is only that which is being doubly taxed ( when multiple taxing authorities are in volved, then an allocation process is required ).

(d)  While US recognizes dollar for dollar the taxes paid to  foreign taxing authority(ies), the allowable  amount for the year is  the lesser of  the US tax or actual paid to foreign govt.

Thus , when you enter the  Foreign Gross income there is no deduction for TDS -- the TDS shows up as Foreign taxes paid.

Does this make sense ?

Is there more I can do for  you ?

[jkbasak]

Thank you PK for your time to respond. Just to ensure I understand your response since there is no provision to enter TDS while entering foreign income in the US Tax File. So there are 2 options

1. Net Sale proceed = Sale Amount - (TDS + Other Sale Expense like Sale Commission)

2. Enter TDS as a Foreign tax credit in Form 1116.

Since TDS on property sale in India is deducted at a higher bracket (30%), does this make sense to select one over other? 

[pk]

@jkbasak , Namaste Basakji

Since there is a tax treaty   between India and USA,  which defines  taxes that under consideration of the treaty,  the argument  that   (a) to  reduce double taxation bite  one should use Net income from sale  ( i.e. after deducting the TDS ) will not  survive a challenge a by IRS.  IMHO, for cases where there is NO Tax Treaty, one may have a chance because the issue is not  discussed;  (b)  the  "savings  clause"  in most treaties allows each  contracting party to administer  tax rules as if the treaty did not exist for its own taxpayers.

Thus  I think you  will lose  if you claim that  your sales proceeds per US tax laws  should be net of TDS.

Also note that TDS is  only a temporary withholding -- it is not settled amount ( till your ITS has been accepted and agreed to ).

Don't understand  30% figure --- thought it is  20% with indexing basis  and 12.5% with NO indexing.  Please  can you  confirm with you Tax person in India  ( this was brought up another poster  with similar  situation and so I had  to update my knowledge )P.

Namaste ji

Is there more i can do for you   ( either add here or  PM me )

pk

[jkbasak]

Hello PK -

Thank you for the time to respond. You are correct, TDS on India property sales by NRI is 20% .  Let me try one more time to clear my understanding

1. As a US Resident, for the sale of property in India,  for US Tax purposes the capital gain should be Sale Price - Purchase price - Sale Expense(like Travel and sales commission). Since there is no indexing, it will simply INR converted to USD based on the exchange rate applicable on the day of the transaction.

2. As US Resident, the amount Seller pay TDS in India, needs to claim the refund as applicable in India. He/She needs to pay the Tax on Capital gain in the  USA only. Hence, no need to declare the TDS as a foreign tax credit since TDS is temporary in nature. 

Another question, can you tell me how to reach you for any further questions in this regard? Are you part of Turbo tax advisory team whom i can reach through live help option?

[pk]

@jkbasak ,  starting with your last question  --

(a) I am a volunteer in the community, have no other relationship / interest with TurboTax.  No you cannot reach me through TurboTax support -- Post in the community or PM.

(b)  your point 1, is generally correct except for travel expenses ( it is generally hard to justify this and win the argument ).    Generally what you are  doing for US purposes , is to treat the sale as if  was a domestic property.  So you  adjust your basis in the property  as shown in my earlier answer .  Tell TurboTax that you have sold a home/ residential property / second home  etc. ( as the  case may be  )   -- if the property was  for personal use and not income then this will be under  personal income, go down the list of incomes  and select appropriate one,  If the ;property was an income property i.e. rented out and possibly  depreciable then this is generally under  Business Income.  What you are doing here is  just recognizing a sale  and ONLY under US tax laws.

(c)  your point 2  --- if and only if you wish to claim Foreign Tax Credit -- form 1116.  This is under  Deductions & Credits-- select "Foreign Tax Credit" and TurboTax will walk you through filling out  the form 1116.  Here your Foreign Source income is your gross  foreign income ( before  TDS ) subject to US taxers -- it is  mostly the lesser of  the foreign capital gain and the US capital gain.  This is where you also enter  the final Taxes  paid to the foreign taxing authority.   Because TDS is only a withholding, one should  generally wait  till the Foreign tax amount is finalized or one may have to amend the US return.

Note here that  while US has a treaty ( Double Taxation elimination/mitigation ) with India , most states do NOT recognize foreign tax treaties and therefore  your  capital  gain ( per US tax rules ) may flow to the State return and be  taxed  -- no foreign tax credit.

Have I answered and cleared your doubts  or did  I confuse the situation more ?   As I said earlier , you can always PM me for more specific interaction ( just NO PII --- personally Identifiable Information ).

Namaste ji

pk

[ksh2025]

Hello pk,

I have a followup question. The property was 50% owned by my mother who is resident of
India. In that case how do I enter the cost basis and sale price?

For e.g  If the total purchase price of the property was 100000 and sale price is 200000, in that case do I just enter cost basis as 50000 and sale price as 100000 in my return? or I need to enter the full amount? 

[pk]

@ksh2025 , 

For US tax purposes, you disposed off only your share  ( 50% ) of the property.  Thus  in your example, your basis   ( for your portion of the asset ) is  50,000 and the sales  proceeds   is 100,000 .   

For Indian Tax purposes  you probably have to file two separate ITRs -- one for your mother ( even in a Hindu Joint Family)  and one for you.  The Taxes  paid to India  by you ( for your share ) will then be eligible  for Foreign Tax Credit treatment.

Does this make sense ?  Is there more I can do for you ?

Namaste ji

pk

[ksh2025]

Hi @pk ,

Thank you for confirming.  Yes I will be filing ITR for my mother as well in India.  

One more question, the TDS that was deducted is not the final tax amount. I will know the final tax paid in India after filing it. In that case I can't claim Foreign Tax credit while filing US tax return unless return is filed in India and all taxes paid correct? 

[pk]

@ksh2025 ,  it is advisable to wait till the  tax liability in India is finalized.

However, you can still file the US return, using the TDS as basis.  But this means there is a reasonable chance  that you may have to file an amended return when  Indian ITR is finalized.

Does this answer your query ?   Is there more  I can do for you ?

Namaste ji

pk

[NS_CN]

Hi @pk ,

This post was very useful as I'm in exact same situation. I had a few things to clarify if I could get your advice.

Do I fill the following forms separately on US tax returns - 8949 and 1040 (Schedule D). I am expecting a TDS refund in India so don't want to complicate with filing for foreign Tax Credit on form 1116.

Also since the property was taken for personal use and /or as second home and home for my parents, but things did not work out for us as planned and we had to sell it. Can I claim partial exclusion for capital gain on these two forms if I need to fill them? 

Is there a different approach to report this ? I only just came to know I had to report this based on how turbo tax gave me a hint when it says balance in foreign accounts exceeded x threshold then fill additional forms 8938. So is this doable through turbo tax or I need to file and mail these forms separately to IRS?

Also filing 8938 on turbo tax https://www.irs.gov/pub/irs-pdf/f8938.pdf leads me to 'needs review' about things I have no ideas to fill like 'Form and line' , 'schedule and line'.

Not sure how to easily report my capital gain and hopefully qualify for exclusion on any capital gains (which maybe my case) during US tax filing through the turbo tax portal options.  Any guidance is helpful!

[pk]

@NS_CN ,   Please excuse the delay in answering your query.

1. The exclusion of gain from the sale of main home is applicable only when the home was used by the taxpayer (s)  as main home within the last five years -- counting from the date of sale completion  ( "closing" date ).  From your post  -- the property was being used by your parents  does not qualify.  If they were filing a return and the property  was in their name then they could have qualified for the exclusion.  The  eligibility to exclude  as described in code section  121, requires -- (a)  the property must be owned by  at least pone of the tax payers; for two years (b)  both taxpayers must have used the property as main home/ residence for 720 days with a look back period of five years from the date of sale and (c) neither taxpayer must have used this exclusion during the last two years.  My ref in this is   -->  26 U.S. Code § 121 - Exclusion of gain from sale of principal residence | U.S. Code | US Law | LII /...

2. When you tell TurboTax   that you have  sale of residence -- it would walk you through  filling out the required forms  8949 and Schedule- D and on to form 1040 as required.   I am assuming you are  using the step-by-step ( interview  ) method and not forms mode.  It will ask for  details  like   When did you acquire the  property, how did you acquire  ( purchase , gift  or inheritance etc. ), what did you pay,  how did you use the property  ( personal use or income generation );  when did you sell thew property ;  How much did you sell the property for  etc. etc.  Through all of this TurboTax will compute the gain/loss based on US laws and will transfer the final figure to form 1040.

3.  Assuming that India  collects TDS and you have to file an ITR to settle the final   tax on the gain ( per Indian laws ), that  Foreign Tax is eligible  for Foreign Tax Credit ---- US-India  Tax Treaty  article  " mitigation of double taxation ".  Note however, while the total taxes  paid to India is recognized ,  the allowable tax credit  is the lesser of  US tax allocated to this  doubly taxed income and that paid to India.  The most you can get is full credit of the US tax.  The rest of the foreign tax is banked and can be used backward for one year or forward for 10 years -- but you must have foreign income to be able to use it.

4  As a US person you are subject to FBAR  ( form 114 at FinCen.gov and only on-line filing ) and FATCA  ( Form  8938   along with your  return for the year ) regs.  TurboTax will help you fill out the form 8938. While these  forms  are only informational ( no tax impact ), filing these  is mandatory if required.  Here is some info  on these two forms -->  Comparison of Form 8938 and FBAR requirements | Internal Revenue Service

Does this answer your query ?  Is there more I can do for you ?

Namaste ji

pk