Q.1046 Capital gains tax in US

and India when property sold in

India

Question: Dear Sir: I need your valued opinion / advise on the following important matter relating to capital gains tax in US on sale of house in India by a NRI and US citizen living and working in US, filing tax returns in US: NRI (OCI card holder) sold her house in India ( originally gifted by her father-in-law 18 years back ) and the capital gains tax on this property works out to Rs. 20 lakhs @ 20% of the capital gain as per Indian tax laws. She invests the total sale proceeds in buying another house in her name and hence exempted from paying capital gains tax in India. No capital gains tax is payable as per Indian Tax laws if the proceeds / gain is reinvested in another property within the time specified. There is a DTAA between US and India . There is no capital gains tax in India in the above scenario in India. What is the position in US. Please let me know whether no tax is payable in US also since no tax is applicable in India. Thanks Vithalrao Lakkaraju Answer: All US citizens and resident aliens are required to report worldwide income to the IRS. Income from all sources within and outside of the United States. Even though due to availing allowed exemptions by investing in another property resulting in no capital gains in India, such tax saving opportunities do not extend to the United States or for that matter to any other country. Indian tax laws apply in India and in the US taxes would be assessed as per US tax regulations. In the United States, property you sold in India would be treated for tax purposes in the same manner as if it was located in the United States. When filling your US tax return you would have to declare the capital gain in India. This usually requires the filing of ‘Schedule D of Form 1040’ [To view a sample of the Form on the IRS site click HERE or visit the IRS website] The benefit DTAA allows is credit towards taxes paid abroad on the same income. Exemptions allowed in India on capital gains tax would not apply for US taxes. US NRIs who hold property in India must also ensure they stay in compliance of IRS reporting requirements such as FBAR and Form 8938. Non Residents should be aware that even if a type of income or asset is not taxable, there may be reporting requirements in USA. It is best to check with a US tax professional accountant or lawyer especially if foreign income is involved. Those who paid or accrued foreign taxes to a foreign country and are subject to US tax on the same income may be able to claim a tax credit or deduction for these taxes.

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