Solved

Question on reporting capital gains on sale of home in India

Forum|Forum|2 years ago
October 3, 2023
2 replies
0 views

Dear experts,

I sold my flat in India in 2022. The capital gains tax was calculated and the buyer paid the price less the tax deducted at source (TDS). (The buyer pays that directly to the Indian revenue service.)

In my 2022 taxes, do I report the sale as a regular sale with form 8949 and calculate the capital gains. And then also report the TDS as foreign tax credit (to get benefit from the double-taxation treaty between India-US)?

The complication is that in filing the India tax return in 2023 (for the 2022 FY), the house's valuation and indexation is taken into account and there is a lower actual capital gains calculation and I will receive a tax refund in India as a result of this. Does this figure get reported in the US 2023 return, or should I incorporate the correction in the 2022 return itself?

Thank you!

Not A Product Question

Best answer by pk12_2

@MS310 , Having read through your situation ( vis-a-vis indexation of basis in India in gain computation ), -- I think I have answered similar before :

For US tax purposes :

(a) you treat the sale of the asset as if the asset was in the USA / domestic and compute your capital gain tax.

(b) in the Deductions & Credit section/tab, you select foreign tax credit

(1) On form 1116 you enter the total foreign sourced income i.e. Asset sales price less sales expenses (including commissions, transfer tax, sales prep etc. etc. --- not the taxes paid to Govt. of India) LESS your Basis ( Original acquisition cost plus cost of improvements ). This should be the same as your gain on Schedule-D or 8949. This the amount that is being doubly taxed.

(2) On form 1116 you enter the total foreign taxes paid ( Collected at source ). Note that this amount should be the final tax amount ( otherwise you have to file an amended return to reconcile with the final amount ) .

Note that your foreign tax credit while recognized US$ for US$, the allowable amount for the tax year is based on a ratio of foreign source income to your world income -- the rest can be carried back one year ( again limited by the same ratio ) and forward till quenched

Does this help or do you need more info on this ? Is there more I can do for ypou ?

Namaste

pk

P

pk12_2Answer

Employee

@MS310 , Having read through your situation ( vis-a-vis indexation of basis in India in gain computation ), -- I think I have answered similar before :

For US tax purposes :

(a) you treat the sale of the asset as if the asset was in the USA / domestic and compute your capital gain tax.

(b) in the Deductions & Credit section/tab, you select foreign tax credit

(1) On form 1116 you enter the total foreign sourced income i.e. Asset sales price less sales expenses (including commissions, transfer tax, sales prep etc. etc. --- not the taxes paid to Govt. of India) LESS your Basis ( Original acquisition cost plus cost of improvements ). This should be the same as your gain on Schedule-D or 8949. This the amount that is being doubly taxed.

(2) On form 1116 you enter the total foreign taxes paid ( Collected at source ). Note that this amount should be the final tax amount ( otherwise you have to file an amended return to reconcile with the final amount ) .

Note that your foreign tax credit while recognized US$ for US$, the allowable amount for the tax year is based on a ratio of foreign source income to your world income -- the rest can be carried back one year ( again limited by the same ratio ) and forward till quenched

Does this help or do you need more info on this ? Is there more I can do for ypou ?

Namaste

pk

M

MS310Author

Thanks @pk12_2 - very helpful explanation!

For some reason, I am unable to navigate to a relevant foreign tax credit entry area through the web interface that will feed into Form 1116. (Only gives me options for mutual funds that are invested abroad and pay foreign taxes.) Any ideas on what may be happening there?

Thx!

P

pk12_2

Employee

@MS310 , I am not familiar with the UI ( user interface ) of the on-line version and therefore am at great disadvantage to help you . Please consider contacting TurboTax support -- they are reputed to quite good at helping with On-line version of the product. Please accept my humble apologies.

pk

S

SG_CA

Hi

I have an exactly similar situation. I too sold a flat in India in Summer 2023. Please can you advise how you addressed your situation that will be of great help for me. I am sure it will help others too.

Thanks

R

Ramesh Aswathnarayana

Did you guys figure this out?

P

pk12_2

Employee

@Ramesh Aswathnarayana , will you please tell more about your situation --- this thread is pretty old .

(a) you a US person ( citizen/ GreenCard / Resident for Tax purposes ) sold a property in India -- when ?

(b) did you pay taxes at source ?

(c) when did you sell the prop . ? Did you use the [prop as your main home within the last five years ( from the date of sale) -- 730 days of use and 2 years of ownership ?

(d) Are you single or file married Joint ?

(e) any other info on this sale ? Like how did you acquire the prop ?

I will circle back once I hear from you

pk