Sale of foreign inherited property (India)

[patnaik]

Hello, I am quite confused as to how to report the sale of foreign inherited property. I am using TurboTax Deluxe and Easy Step.

1. I inherited a property in India in Feb 2023 with fair market value of $180K, converting from Indian Rupees to USD as of that date.
2. I sold the property in July 2024 for $182K, converting from Indian Rupees to USD as of that date.
3. I paid Indian capital gains taxes in July 2024 of $39K. (India charges capital gains from time of acquisition of the property by the original owner, not from when the property was inherited, unlike the US.)

I would like some step-by-step instructions on how to all enter this. I think I figured out how to report the sale of inherited property, but there was not a place to indicate that this was a foreign property. I tried to claim a foreign tax credit, but that whole section proved too confusing for me. Thanks in advance for your help.

[pk]

@patnaik , Namaste Patnaik ji.

  Just to be sure that I understand the situation:

(a) You a US person ( citizen/GreenCard/ Resident for Tax purposes )  inherited  a property  in India  in 2023 with a FMV of  US$180,000

(b) You disposed of this  asset  in 2024  for  sales price of  US$182,000..   Is this the   net amount i.e.  Sales price LESS sales Expenses  ( like commission. transfer tax, any repairs etc. done for purposes of selling etc. etc. ) ?

(c) You paid  US$ 39,000 as capital gains tax ( TDS ? ).  Thought India uses a flat 20% TDS and uses indexing (but  no step-up)  of basis ).  Surely your India  tax return is not filed yet for 2024/2025 tax year.  This will not get settled  still for a while -- no ?

General suggestion would be  to not file your US tax return  ( but go ahead and pay-in any tax liability ) till later in the year when the Indian tax is finalized.  Else file now  based on   TDS  and  come back and amend the return when  Indian taxes are settled/finalized.

As far as  foreign tax credit,  generally  and per  US-India Tax Treaty,  while US will recognize  dollar for dollar what has been paid/settled with India,  the allowable credit , for the year ,is always the lower of  amount paid to India  and what US taxes on the same income ( double taxation mitigation clause  ).  Thus  given the step up  value, your capital gain tax in the US is bound to be far ,lower than that  you paid in India.

Also note that  there is no area in TurboTax ( or  US tax ) where a distinction is made  between assets  disposed of in the USA or abroad.

You are welcome to tell me more  ( either here on the public board or PM  ) and I will do all I can to help you file a correct return.

Note that for this type of reasonably complex  returns , my  preference is to use Windows download "Home & Business".

Also note that if the proceeds  stayed in any foreign ban account ( in India ) for any length of time you are subject to FBAR and FATCA regs..

Is there more I can do for you.

Namaste ji

pk

[patnaik]

PK,

Thank you for your prompt response.  To clarify: a) I am a US citizen, b) 184K was sale price and I paid 1% commission on top of this. All other expenses were borne by the buyer. c) I paid TDS, but my CA in India has determined the actual  LTCG tax due to be 39K.  Indian taxes will be filed in May.

I can file for an extension, but my understanding is that tax is due anyway by April 15 and I need to ensure that I do not underpay. Hence I need to have a very accurate estimate of the tax due.

I will be filing FBAR as I have been doing all along. The proceeds from the sale (less TDS) were in my bank account in India for less than a week.

BTW, the LTCG tax rate in India changed recently (7/23/24) to 12.5% + cess and no more indexing.

I am looking forward to any assistance.