Rental income
Rent from an Indian property goes on Schedule E of your US return, converted to US dollars. You can deduct expenses such as property tax, maintenance charges, repairs, property management fees and home loan interest.
Foreign residential rental property is depreciated over 30 years in the US, using the building's cost, not the land. India also taxes the rent; you can usually claim a foreign tax credit for the Indian tax paid.
When you sell
The gain is reported on Form 8949 and Schedule D. Work it out in dollars: the purchase price at the exchange rate when you bought, and the sale price at the rate when you sold. A weaker rupee can shrink or even erase a gain that looks large in rupees.
If the home was your main residence for at least two of the five years before the sale, the US home-sale exclusion of up to $250,000 ($500,000 for married couples filing jointly) may apply. Most NRIs who rent out their Indian home or leave it vacant do not qualify.
Foreign tax credit
India taxes rent and capital gains first. To avoid paying twice, claim a foreign tax credit (Form 1116) for Indian tax paid on the same income. The India–US tax treaty supports this. Keep TDS certificates and your Indian tax return as proof.
FBAR: reporting your Indian bank accounts
If the combined balance of all your foreign financial accounts was more than $10,000 at any time in the year, you must file an FBAR (FinCEN Form 114) online by the tax deadline. NRE, NRO and FCNR accounts all count, including joint accounts and accounts you can sign on. The property itself is not reported.
FATCA: Form 8938
Separately, Form 8938 goes with your tax return if your foreign financial assets exceed:
- $50,000 on the last day of the year, or $75,000 at any time, if you are single and live in the US
- $100,000 on the last day of the year, or $150,000 at any time, if you are married filing jointly
Property you own directly is not a reportable asset, but your Indian bank accounts and deposits are. Penalties for missing FBAR or Form 8938 can be severe, so file even when no tax is due.
Points NRIs often miss
- Interest on NRE and FCNR deposits is tax-free in India but taxable in the US
- Rent received in India is taxable in the US in the year you receive it, even if you never transfer it
- Gifts of money from parents in India above $100,000 in a year must be reported on Form 3520, though they are not taxed
- Indian mutual funds held by US persons fall under complex PFIC rules; take advice before investing
FAQs
Do I have to report owning a house in India to the IRS?
Not the house itself. You report the rent it earns and the gain when you sell, plus the Indian bank accounts linked to it on FBAR and, if thresholds are met, Form 8938.
Will I be taxed twice on rent?
Usually not. India taxes it first, and you claim a foreign tax credit in the US for the Indian tax paid.
Is NRE interest taxable in the US?
Yes. It is tax-free in India but must be reported on your US return.
Who should prepare my return?
A US tax preparer or CPA with experience of Indian assets, working alongside a chartered accountant in India.
This guide is general information, not legal or tax advice. Rules change; confirm the details with a chartered accountant or lawyer before you act.
Westcliff Realty