[BalaMK08]

I am an Indian citizen and permanent resident in the United States. When I sell my real estate property in India, I am due to pay taxes in India. When I transfer the sale proceeds to the U.S. am I exempt from capital gains or any other tax on the proceeds under the Double Taxation treaty between India and the U.S.
If so, is there a monetary limit like the $250,000 capital gains exemption allowed in the U.S.

[AtlantaTaxExpert]

There is NO general capital gains exemption in the U.S.

I believe you speak of the exemption from selling your personel home. On that, if you have owned and lived in the home for two of the past five years and you sell the home for a profit, then the first $250,000 of that profit IS exempt from capital gains. You do not even have to report the sale. That exemption applies regardless of where the home is located.

Also, I DO believe that, if you paid taxes in India on the sale of the property, you are exempt from reporting that sale on your U.S. tax return.

[MukatA]

You will report the sale of the property unless it is your main home or second home and you meet the ownership and use test.

If it is not your main home, then you will report sale on schedule D. If you paid taxes on the profit in India, then you can take foreign tax credit by filing Form 1116.

This situation may change if you inherited the house that is you did not buy the house. So post more information so that we can give you more specific answer.

[BalaMK08]

Thanks, Mukat.
I have narrowed my question to one central one. I would appreciate an answer on this one.
Examine the following situation: I sell real estate in India (one is principal residence and another can be secondary home) and HAVE to pay capital gains taxes. Now, when I convert into dollars and move the money to the U.S.:
1. Am I liable for any taxes?
2. If so, how may I avoid or minimize them?
3. If not, do I have to still report the funds transferred?
4. And, can I get any tax credits for the taxes paid in India for my U.S. (worldwide) income?

You will report the sale of the property unless it is your main home or second home and you meet the ownership and use test.

If it is not your main home, then you will report sale on schedule D. If you paid taxes on the profit in India, then you can take foreign tax credit by filing Form 1116.

This situation may change if you inherited the house that is you did not buy the house. So post more information so that we can give you more specific answer.

[AtlantaTaxExpert]

1) Yes; U.S. capital gains taxes on the secondary home.

2) You CANNOT legally avoid them. You must report the sale on Schedule D. Now, the fact that you paid taxes in India may offset whatever tax you owe to the U.S. which would be at either 5% or 15 (capital gains rate).

3) There IS a requirement to report the funds transfer, but I do not know the form. I believe MukatA can help in this question.

4) Yes, using Form 1116.

[BalaMK08]

Thanks for your help; I think I have a better understanding now. I shall get in touch with you for further help as and when some of my plans take shape.

[AtlantaTaxExpert]

Glad to help!

[MukatA]

You should read: Publication 523 Selling Your Home
Internal Revenue Service
If you bought the house yourself (that is it was not inherited) and sold the house, then you don't report when you transfer the money. You may still have to report the profit on schedule D.

If you inherited the house and since inheritance is not taxable, you must report it if the amount if it is over $100,000. Since IRS wants to make sure that it is gift or inheritance.

Also there is another reporting requirement. If at any time in the year your total deposits in banks and companies exceed $10,000 you must complete Form TD F 90-22.1 and File with the Department of Treasury by June 30, 2008. The Form TD F 90-22.1 can be download from: Internal Revenue Service

[AtlantaTaxExpert]

Agreed.