Sale of Inherited Property in India

[taxformummys]

I am a US Citizen living in the US for 20+ years. I inherited a property in India in December 2022 (that's when my name was added to the property card).

I sold the property in June 2024.

Per the CA in India:

Fair Market Value of property in December 2022= $ 20,000 (i don't have any document showing this information)

Selling Price of Property in June 2024= $ 36,000 (i have documents from sale of the house)

Repair Cost= $2,000 (don't have all the receipts anymore)

Foreign Tax Deducted at source =$3,800 (I have copy of the TDS)

Here are my questions: 

1. How do I report this sale of house on Turbo Tax Deluxe or do I need to buy Turbo Tax Premium?

2. What documents do I need to have to show as proof to IRS for reporting this sale of house? Does IRS typically ask for documents?

3. Anything else I need to know before I file?

[DaveF1006]

You would handle this like an investment sale in "Turbo Tax". For this type of investment reporting, you would need Turbo Tax Premium. 

Here  is how to report your investment sale in Turbo Tax online.

1. Open your return
2. Go to Income
3. Go to Investments and Savings (1099-B, 1099-INT, 1099-DIV, 1099-K, Crypto)
4. When it asks ho you would like to enter the information, say you would like to enter a different way.
5. When it asks for the type on investment select other
6. Now you will start answering questions about this sale.
7. When it asks for the type of investment, select other
8. Then there will be questions you will need to answer such as how you received the investment, date inherited, date sold, proceeds, and total amount paid. Total amount paid is the fair market value at the time of the inheritance.
9. Finish out this section until you have completely reported the sale.

As far as documents, save each one you have regarding the sale. You won't need to submit these to the IRS but you may need them if the IRS has any questions regarding this sale.

The repair costs are not deductible or reportable on your return. Also, you need to apply for a refund of your TDS on your Indian Tax Return.  Here is an excellent source explaining to you how to apply for your TDS refund.

[easyreturn]

Based on your situation, here's a breakdown of how to approach this:

1. TurboTax Edition:

• For reporting the sale of a property, especially one located outside the US, you will likely need TurboTax Premium. The Deluxe version often doesn't handle the complexities of foreign asset sales and the associated tax forms as comprehensively as the Premium version. TurboTax Premium includes more detailed guidance on investment property sales and foreign tax credits.

2. Documents for IRS Reporting:

It's crucial to have documentation to support the information you report to the IRS. While the IRS might not always ask for documents upfront when you file, they can request them later during an audit. Here's a list of documents that would be beneficial to have:

• Sale Deed/Transfer Documents: This is the primary document proving the sale price of $36,000 in June 2024. You mentioned having this, which is excellent.
• Property Card/Mutation Documents: The document showing your name was added to the property card in December 2022 serves as evidence of the date you inherited the property.
• Evidence of Fair Market Value at Inheritance (December 2022): This is where it gets a bit tricky since you don't have formal documentation. While your CA provided an estimate of $20,000, the IRS generally prefers more concrete evidence. Consider if there were any of the following around the time of inheritance that could help support this value:
  • Appraisal Reports: Even if informal, did a local appraiser give an estimate?
  • Recent Sales of Comparable Properties: Were there similar properties sold in the vicinity around December 2022? You might be able to find records online or through a local real estate agent.
  • Property Tax Assessments: The assessed value for property tax purposes around that time could offer some indication, although it's not the same as fair market value.
• Documentation for Repair Costs: Even though you don't have all the receipts, gather any that you do have. If you paid by check or have bank statements showing payments for repairs, those could also be helpful. While you might not be able to deduct the full $2,000 without complete documentation, having some evidence is better than none.
• Foreign Tax Deduction at Source (TDS) Certificate: The copy of the TDS certificate showing the $3,800 withheld is essential for claiming the foreign tax credit.
• Currency Conversion Records: Keep records of the exchange rates used to convert Indian Rupees to US Dollars for both the fair market value at inheritance and the sale price. You can typically find historical exchange rates online (e.g., from the Reserve Bank of India or other financial data providers).

Does the IRS typically ask for documents?

The IRS doesn't always ask for supporting documents when you initially file your tax return. However, they can and do request documentation if they have questions or decide to audit your return. It's always best to have the necessary documents readily available in case they do.

3. Other Important Considerations Before Filing:

• Capital Gains: The profit from the sale of the inherited property will likely be considered a capital gain in the US. The holding period for inherited property is generally considered long-term, regardless of how long you actually owned it. Long-term capital gains are typically taxed at lower rates than ordinary income. The capital gain would be calculated as:

  Capital Gain = Selling Price - (Fair Market Value at Inheritance + Repair Costs)
  Capital Gain = $36,000 - ($20,000 + $2,000) = $14,000

  Keep in mind that the IRS might scrutinize the $20,000 fair market value without supporting documentation.
• Foreign Tax Credit (Form 1116): You will want to claim a credit for the $3,800 in foreign taxes withheld in India. You will need to file Form 1116, Foreign Tax Credit, with your US tax return to do this. This form can be complex, and TurboTax Premium should guide you through it.
• Basis in Inherited Property: Generally, the basis of inherited property is its fair market value on the date of the decedent's death. Since your name was added to the property card in December 2022, it's important to confirm if this aligns with the date of death for US tax purposes. If there's a significant difference, you might need to clarify the correct valuation date for your US tax basis.
• Currency Conversion: You need to convert all Indian Rupee amounts (if the sale and valuation were in Rupees) to US Dollars using the appropriate exchange rates at the time of inheritance and the time of sale.
• Professional Advice: Given the international aspect and the lack of complete documentation for the fair market value and repair costs, it might be prudent to consult with a tax professional who has experience with international tax matters and US citizens selling foreign property. They can provide personalized guidance and ensure you are reporting everything correctly and maximizing any potential deductions or credits.

Filing taxes with international transactions can be intricate, so taking your time and gathering as much supporting documentation as possible is key. For More Information you reach out [Link removed].Good luck with your filing!