Selling a property in India and then buying a second property with some of the proceeds

[pmehta123]

Hello,

I am a US citizen. I sold a home in India (a second home) and bought another smaller home in India with some of the proceeds. I already filed a tax return with the Indian government and paid the long-term capital gain tax and got the refund. How do I report such a transaction in TurboTax?

Let us say the following are the simplified amounts.

Sale amount for the original home = $250,000
Cost Basis for the original home = $100,000
Capital Gain = $250,000 - $100,000 = $150,000
Purchase Price for the new home = $125,000
Amount for which I am liable for capital gain tax in India = Capital Gain - Purchase Price for the new home =
$150,000 - $125,000 = $25,000
Capital Gain Tax (20%) Paid in India = $25,000 * (20/100) = $5,000

Thank You.

[ThomasM125]

You will report the sale as an investment sale in TurboTax.

You enter investment sales in the Wages and Income section of TurboTax, then Investments Sales, then Stocks, cryptocurrency, Mutual Funds, Bonds, etc... Skip the section where it asks if you want to upload your tax documents. Choose Other as the type of investment you want to enter. You'll come to a screen where you can enter in your sales proceeds and cost basis.

You will get no immediate deduction for the cost of the new home.

To get a credit or deduction for your foreign taxes paid or accrued, you need to go to the Estimates and Other Taxes paid section in the Deductions and Credits area of TurboTax, then choose Foreign Taxes to assign your foreign income to a country and enter the tax paid. The credit is usually more beneficial that a deduction but is limited to the US tax on your foreign income. Any unused credit can be carried back or forward to benefit other tax years.

[pmehta123]

Hi ThomasM125,

Thank you for getting back to me. You mentioned - 'You will get no immediate deduction for the cost of the new home'.  So, does that mean I end up paying tax on the entire capital gain, even though I reinvested most of that money back, and the Indian government only taxes me on the balance?

Can I report the entire transaction as the 'like-kind exchange' instead of the first way you suggested? That way, I won't have to pay tax on the capital gain that I reinvested.

Thanks.

[SusanY1]

Yes, you are taxed on the full capital gain even though you reinvest in another property.  You do get credit for the foreign tax paid, as ThomasM125 mentions above, which should mitigate any US tax.

To use the "like-kind exchange" rule on your US tax return, very specific steps must be taken prior to the purchase of the new home including use of a "qualified intermediary".  The US taxpayer can never take possession of funds when using a like-kind exchange for real property. Therefore, you won't be eligible for that on your US tax return, even though rules may differ for your Indian tax return.  

For US tax purposes, though, you probably have a different basis in the new property - which is equal to the full value that you paid for it (there is no carryover of the basis of the old property).  

This will reduce the gain on the sale of the new property, when that occurs.  

[pmehta123]

SusanY1

Thank you.