How to report the sale of inherited real estate

[som1178]

I am an US Citizen. After our mother passed away in 2021, we sold our inherited real estate property in India in 2023. My share of the proceeds was $120K, out of which $30K tax was deducted at source by the government, leaving me with $90K net. Out of this, I transferred $80K to the US in 2023.

My share of the sale proceeds is Indian Rupees 9,925,000. Using IRS table for average exchange rate for USD to INR in 2023 (INR 82.572 = USD 1), this translates to $120K.

The FMV for my share in 2021 would have been Indian Rupees 9,375,000. Using IRS table for average exchange rate for USD to INR in 2021 (INR 73.936 = USD 1), this translates to $126K.

Although the property price appreciated in 2 years in Indian Rupees, it actually depreciated in USD. Should I report a loss as a result of this transaction?

I am aware I need to file an FBAR. Do I also have to file forms 8938 and 3520? I am married filing jointly in the U.S.

Appreciate a response.

TurboTax user since 2003.

[DaveF1006]

Yes, you do have much work to do. Let's start with reporting the sale of the house. For the cost basis, you would use the Fair Market Value on the date of death.  There is no depreciation adjustment between 2021-2023. To report this sale, go to:

• Federal
• Wages and Income
• Investment Income 
• Stocks, Mutual Funds, Bonds, Other

Usually I give additional instructions how to complete this section but these threads allow a limited amount of information. If you do need additional information, please reach out to us again.

To claim a foreign tax credit for the taxes paid:

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit
5. When it asks We just need to check if you have any uncommon situations indicate I paid foreign taxes on income I earned while working in another country. 
6. Navigate and record the entries that the program asks for and when you reach the page that mentions Foreign Tax Credit Worksheet, this is where you take notice.
7. The first that you will be asked is what category of income is it, you will say passive income.
8. Next screen will say Country Summary, select add a country 
9. When it says Other Gross Income - XXXX, Here you put in the Gross Amount you earned in that country. This would be the amount of proceeds you were taxed.
10. Then you will navigate through the screens until you come to a screen that says Foreign Taxes Paid - XXXX, here is where you record the amount paid under Foreign Taxes.
11. Finish out the section. 

Yes you do need to file an FBAR here. You may need to file a 8938 if:

• You are filing single.
• If you had a bank account in India, that had more than $75,000 at any time during the year. This is important because if you deposited the money you received from the sale into a bank account before transferring to the US, then there is a 8938 reporting requirement. Also if your Indian Bank Account had more than $50,000 on the last day of the US calendar year, this needs to be reported on  8938.

As far form 3520, that should have been filed in 2021 when the inheritance was first received. Did you file one for that year?  I would hire a tax professional for this as this can result in a heavy fine if you didn't file in 2021.

You may also file a 3520 this year and as you complete part 1V on the 3520, you list the date you received the inheritance in 2021. You won't be able to electronically file this return with this form so  I would include a detailed statement why you didn't file this in 2021. If the IRS sends you a letter regarding a penalty, you may request penalty relief. Again, I strongly suggest to hire a tax professional to help you with this matter.

IRS-Penalty Relief

Form 3520  to download and complete

Instructions for Form 3520

Instructions for Form 8938

[DaveF1006]

Yes, you do have much work to do. Let's start with reporting the sale of the house. For the cost basis, you would use the Fair Market Value on the date of death.  There is no depreciation adjustment between 2021-2023. To report this sale, go to:

• Federal
• Wages and Income
• Investment Income 
• Stocks, Mutual Funds, Bonds, Other

Usually I give additional instructions how to complete this section but these threads allow a limited amount of information. If you do need additional information, please reach out to us again.

To claim a foreign tax credit for the taxes paid:

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit
5. Be sure to report the full amount of your proceeds when it asks for the gross income amount. 

Again there is not enough room in this post to list complete instructions. If you need additional instruction, please reach out.

Yes you do need to file an FBAR here. You may need to file a 8938 if:

• You are filing single.
• If you had a bank account in India, that had more than $75,000 at any time during the year. This is important because if you deposited the money you received from the sale into a bank account before transferring to the US, then there is a 8938 reporting requirement. Also if your Indian Bank Account had more than $50,000 on the last day of the US calendar year, this needs to be reported on  8938.

As far form 3520, that should have been filed in 2021 when the inheritance was first received. Did you file one for that year?  I would hire a tax professional for this as this can result in a heavy fine if you didn't file in 2021.

You may also file a 3520 this year and as you complete part 1V on the 3520, you list the date you received the inheritance in 2021. You won't be able to electronically file this return with this form so  I would include a detailed statement why you didn't file this in 2021. If the IRS sends you a letter regarding a penalty, you may request penalty relief. Again, I strongly suggest to hire a tax professional to help you with this matter.

IRS-Penalty Relief

Form 3520  to download and complete

Instructions for Form 3520

Instructions for Form 8938