Selling and buying rental property --Please delete

[SORCH]

Is there a tax impact in US if I sell a rental property and buy another rental property in India for same price? 

[Critter-3]

This is called a 1031 exchange however you must follow the rules exactly to push the gain forward.  

• Where do you enter a like-kind  or Section 1031 exchange?
• IRS Fact Sheet for Section 1031 Exchange
• IRS Instructions for Form 8824

[tagteam]

@Critter-3 is correct and you need to read the information at the links provided.

You might also want to do an internet search using the search terms, "qualified intermediary 1031", for a QI in your area.

Note that since your relinquished property is located in a foreign country (India), your replacement property must also be located in a foreign country (although not necessarily India); it cannot be located in the USA.

[Opus 17]

The background here is that, regardless of Indian law, the IRS will view the transaction under US tax law.   This can sometimes result in very different tax treatment between two countries.  (For example, I understand that at least sometimes in India, a seller will get an inflation adjustment to the cost basis.  The US does not allow this.)   I also don't know if the rules for depreciation and recapture are the same or different between the US and India.  If you don't do the section 1031 exchange exactly correctly, you will pay capital gains tax on the sale of property #1 this year.  (Of course, that would mean that you would pay less capital gains tax in the US when you sell property #2, because property #2 will not carry the deferred gain from property #1, at least in the US.). You may want to hire a professional tax advisor.  

[pk]

@SORCH , having gone through all the comments/ answers/suggestions by my colleagues @Critter-3 , @tagteam  and @Opus 17 , and while I generally agree  with the articulations,  I lack some information such as  (a) when did you become a US person ( Green Card, Resident for Tax purposes ); (b) how did you acquire the rental property  { interest here is  what was the basis  at the point when you became a US person and thus subject to US tax laws including depreciation regime; (c) was the property a rental property when you became a US person; (d)  from US perspective, were you planning  to sell the property in one  part of India  ( state, locality ) and then  with the proceeds  buy another property  in another place at different times  or were you planning to  really exchange ( at the same time ) one prop. for another without any monies going through your hands at all; (e) are you employing an agent to facilitate  this transaction ; etc. etc.

While you answer  these  questions, IMHO, because of the tax law   differences and exchange rate fluctuations,  etc. , it may be simpler just to sell and buy rather than meet the strict timing and process requirements  of 1031  ( delayed recognition of gains ) like-kind exchange.

I will awaite your answers and circle back 

pk

[SORCH]

Thanks all for the replies.

 I went through the 1031 and google searched as recommended.I agree. It is easier to sell and buy at different timings though I find it is better to find a property to buy before selling. 

[tagteam]

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@SORCH wrote:

It is easier to sell and buy at different timings though I find it is better to find a property to buy before selling. 

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The exchange can be done either way but the rules must be strictly adhered to or any gain will not be deferred.

See https://www.americanbar.org/groups/real_property_trust_estate/resources/real_estate_index/section-10...

[pk]

@SORCH , since you have already familiarized yourself with 1031 like-kind exchange, I assume that you do understand the need for a qualified intermediary if you do  anything but direct exchange.  I have done quite a few 1031s in my time of owning  rental realestate in the USA ( uncomplicated by exchange rate  movements ).  There are three kind of  exchanges :  (a) direct where one  or more assets are exchanged  contemporaneously  i.e. buyer and seller  do the paperwork at the same time in the same place ( generally) with r without money exchanging ( boot). I never did this  and  is not the most common.;  (b) forward 1031 where the seller relinquishes the title to an intermediary, whom sells the property and holds all the monies. then when the relinquisher has identified a  new prop . within the required six months  affects the purchase, and then hands over the title of the new property to the relinquisher -- thus meeting with the contemproneous requirement ( in a roundabout way); (c) and lastly the reverse 1031 --- here the relinquisher purchases the new property through the QI, title rests with the QI, then sells the relinquished prop -- as in (b) above.

AS I said before I am leery  of doing this 1031  with foreign prop. , especially in a country 1031 type of delayed tax recognition is not common / legal, in addition to the exchange rate uncertainty.  1031  only delays gain recognition  and in this case would be subject to the vagaries  of the US$ / INR  exchange rate.  A second issue would be the proper handling of the depreciation  accumulated  in the relinquished prop. / asset and segregation of the new and/or  additional  depreciable basis with new term.  Can all this be done -- absolutely yes.   Would this be beneficial in the long run -- I don't know and only you can judge this based on the work, professional help ( may be ? ) and your own long term goals.

BTW -- on going through your answers ,  I have a few more questions -- 1. Did you recognize the depreciation for the rental property  once you started filing form 1040 in the USA ; 2. How did you select the depreciable basis of the prop for US purposes; 3. was the property available for rent all through out from 2018 (?)  or just that  renters came and went , not always rented out but was indeed available  to rent ??

Agree with @tagteam 's all responses to this post/ subject as also with all the others  above ( and mentioned in my earlier  response)

Is there more I can do for you ?

BTW -- in your answers please do not include any Personally Identifiable  Info ( this is public  board) and if your answers / questions go beyond  items of general interest, you can always PM me and I will respond  outside the board.

pk

[SORCH]

I got the answers I was looking for. Thank you.