If I sell land in India, do I need to pay capital gain taxes in the US?

Question

If I sell land in India, what are the overall tax implications?

- I need to pay taxes in India but do I also need to pay taxes in the US on the capital gains?

Answer 1

If you are a US person (citizen, green card or resident), you have to put your worldwide income on the tax form, so yes, you have report the sale.

If you *also* pay taxes to India (land is generally taxed by where it is located), you can get a foreign tax deduction or credit to reduce the impact of double taxation.

If you are a non-resident (but not a student ), the income would not be reported.

http://www.irs.gov/businesses/small/inte...

Answer 2

Assuming you are a U.S. citizen or resident (because otherwise you wouldn't owe any taxes in the U.S. on foreign-source income), you are taxable on your worldwide income from whatever source derived.  So you would GENERALLY be taxable on gain from the sale of real property in India.

In some income tax treaties, gain from the sale of real property can be taxed only in the country in which the property is situated.  This is not the case for the U.S.-India Tax Treaty.  Article 13 of the Treaty states, "[E]ach Contracting

State may tax capital gain in accordance with the provisions of its domestic law."  That means they both have a right to tax the income.

HOWEVER--and this is the important point--you are entitled to a credit against your other U.S. tax liability in the amount of taxes paid to India, up to certain limitations.  That is, if you had to pay $10,000 to India as a result of the gain, you could reduce your U.S. tax liability by the same amount (regardless of whether the U.S. tax was ordinary or capital in nature).  

There are limits to the amount you can claim as a credit, and they are very complicated limits that would require complex computation.  In general, though, you can only take a credit up to the amount of your U.S. tax liability and no more.  Depending on the source of your other U.S. income (specifically, whether it is so-called "passive limitation income" or "general limitation income"), the limit you can take as a credit may be lower than your total U.S. tax liability.  The only way to know exactly how much you can take as a credit would be to look in detail at your other income.