Selling Property in India: US Tax Guide

Selling a flat, plot or ancestral house in India is one of the most common reasons an Indian-American calls a CPA. Two tax systems apply. India taxes the gain under its own law. The United States also taxes it if you are a U.S. citizen, a green card holder or another U.S. tax resident, because the U.S. taxes worldwide income. Indian tax on the sale is handled under Indian law with an Indian CA, including tax deducted by the buyer, certificates and moving the money out of India. This page covers the U.S. side.

Step 1: Find your U.S. basis

Your basis is the starting point for gain. How you got the property decides it:

• Bought it: your cost plus certain purchase costs and improvements, in dollars at the rate on the purchase date.
• Inherited it: generally its fair market value on the date of death, converted at the rate for that date. Keep a written valuation.
• Received it as a gift: generally the donor's basis, with a special rule if you sell at a loss.

If you rented the property out, depreciation you were allowed reduces basis. See rental income from India.

Step 2: Work out the gain in dollars

The IRS says to translate foreign-currency amounts at the exchange rate when you receive, pay or accrue the item. For a sale, that means the cost at the rate on the purchase date and the price at the rate on the sale date. The IRS has no official rate and accepts any posted rate used consistently.

Selling costs such as brokerage reduce the amount you realize. Keep the deed, registration papers, receipts for improvements, the sale deed, the buyer's tax deduction certificate and the Indian CA's computation.

Step 3: Rates and exclusions

A gain on property held more than one year is long-term and is usually taxed at lower rates than ordinary income. See capital gains and losses. The net investment income tax may add 3.8% if your modified adjusted gross income is over the threshold for your filing status.

The home sale exclusion of up to $250,000 ($500,000 for joint filers, tax year 2025) applies to your main home if you owned it and lived in it for at least 24 months of the five years before the sale (Publication 523). Property you inherited, rented out or left empty usually does not meet the use test. If you think your Indian home qualifies, confirm the details first; see home sale exclusion.

Step 4: The foreign tax credit

Income tax you owe to India on the gain can be claimed as a credit on Form 1116. A gain on real property is sourced to the country where the property is, so it is foreign-source income. The credit is limited by a formula, and foreign capital gains need special adjustments in that formula. Unused credit can be carried back one year and forward ten years.

• Claim only tax you legally owe. If the buyer deducted more than your final Indian liability and you can claim a refund through an Indian return, the extra is not creditable. A later refund requires you to tell the IRS.
• Indian GST, stamp duty and property tax are not income taxes and do not qualify for the credit. Some may add to your basis instead.
• Indian tax years run April to March, so the Indian tax and your U.S. year may not line up. Confirm the payment dates with your Indian CA.

See foreign tax credit on India income.

Step 5: Reporting and reinvesting

If the money lands in an NRO or NRE account, it counts toward the FBAR and, above the threshold, Form 8938. Sending funds out of India involves Indian forms and limits under Indian law, handled with your Indian CA.

Using the proceeds to buy a U.S. home or rental does not defer the tax. The IRS states that real property in the United States is not like-kind to real property outside it, so a 1031 exchange is not available across the border.

How we can help

We compute your basis and gain in dollars, claim the credit, plan the timing with your Indian CA before closing, and report the proceeds. See international tax services.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.