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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3987
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Dear Merlo, I am selling a inherited house in India. I will

Resolved Question:

Dear Merlo,
I am selling a inherited house in India. I will pay all Capital Gains taxes in India for the entire amount of sale. Can I receive some partial funds from the buyer a Non-resident Indian in form of a US-bank to US-bank transfer and the remaining amount in Indian Rupees converted to US Dollars after all taxes are paid? Please advise.
Sri Vin
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi,

NPVAdvisor :

If taxes are paid in India, then this would simply a transfer, requiring disclosure (for money laundering/money tracking, etc. purposes)

NPVAdvisor :

So if the amount is over 100, you'll DECLARE the money to treasury (trough IRS) but this is not a taxable event ... let me get the form for you

Customer:

So, I can transfer part of the sale funds from a US bank to a US Bank and get the rest converted through a bank in India from Rupees to US Dollars. I am a naturalized US Citizen and the Buyer a Non-Resident Indian (NRI)

NPVAdvisor :

Ahhh you are a citizen ... In that cause you'll need to report that gain here (although your basis in the property fur US tax purposes will be the Fair Market Value at date of death), then you can use the Credit for taxes paid to a foreign county CREDIT

NPVAdvisor :

Four tests must be met for the tax to qualify for the credit:



  1. The tax must be a legal and actual foreign tax liability

  2. The tax must be imposed on you

  3. You must have paid or accrued the tax, and

  4. The tax must be an income tax (or a tax in lieu of an income tax)


 

Customer:

The total transaction amount will be about $200,000 to $300,000 at today's exchange rate.

NPVAdvisor :

capital gins are a "tax in lieu of an income tax"

NPVAdvisor :

Was the death recent? (so sorry for your loss)

Customer:

Fair market value on Date of Death. So Fair Market value on date of death of my father not the value of the sale this year ?

Customer:

I will have all documents of the payment of Taxes in India. Will that be sufficient?

NPVAdvisor :

the Gain, here, will be based on sales price LESS the basis (which, again, for inherited assets will be the Fair Market Value as of the date of death)

Customer:

What form(s) do I need to use?

NPVAdvisor :

Yes, you'll keep those for your own documentation ...

NPVAdvisor :

just a sec, on the form ...

NPVAdvisor :

You can choose to take the amount of any qualified foreign taxes paid during the year as a foreign tax credit or as an itemized deduction. To choose the deduction, you must itemize deductions on Form 1040, Schedule A (PDF). To choose the foreign tax credit you generally must complete Form 1116 (PDF) and attach it to your Form 1040 (PDF),

Customer:

Please clarify on if I can transfer some of the funds here from buyer US bank account to my US bank account and take the remaining money in Indian rupees and convert to US Dollasrs to bring here? The buyer is a NRI that is Indian citizen but lives and works in the US.

NPVAdvisor :

Yes, that is not a tax issue but rather a transfer of money (the taxable event here is the capital gains upon sale, which you'll report as we've discussed above) ... as long as you declare any amounts of money coming into the US that are in amounts over $100,000, you'll need to submit that form 3520 (linked above) ... but again, this is not a taxable event ... how you receive the money is an issue you'll cover with your bank

NPVAdvisor :

(or other exchange agent) ... the bank will also have reporting requirements regarding amounts over $10,000, but again this is for tracking of money flows, (moneylaundering operations, etc) has nothing to do with taxes

Customer:

So, I have to file both the 3520 and also mention a deduction on 1040 Schedule A ?

Customer:

The 3520 is to report the entire sale and the 1040 schedule A is to claim deduction for Tax purposes? Correct?

NPVAdvisor :

yes the 3520 is simply a declaration of money coming in .. the deduction (or credit) is where you'll offset any gains taxes you may have to pay here on the sale of your property, on your tax return ... the 3520 is not a tax return and will be sent in when the money comes in ... your dealing with the gain on your tax return will be done by your normal tax filing time

Customer:

Thanks for your advise. I knew most of the answers but to double check with an expert like you makes me more comfortable to proceed.

Customer:

And, thanks for the Form numers and such.

NPVAdvisor :

You're very welcome. Let me know if I an help further

Customer:

Do I have to file the 3520 twice if there are going to be 2 transactions? one a transfer from US bank account to US bank account and the other through Rupee to Dollar conversion ?These transactions may happen on two different dates. Do I send the Form 3520 myself or via the bank?

NPVAdvisor :

You'll send it yourself (the banks requirements are all internal and are triggered at much lower amounts) and yes, since it is a form for declaring money movement (from outside the US to inside the US) you'll have to send in twice ... IF the amount coming in is over $100,000 in value ... Lets say that the first transfer is for 250,000 and the second is only for $80,000, the second transfer will not require a form 3520

Customer:

The first transfer is not an outside transfer. It will be a online transfer from US bank to US bank.

Customer:

What are the issues with making multiple transfers keeping them below $100,000 each time. Can I do that and not file the 3520?

NPVAdvisor :

Yes, but the transfer is coming from the ownership of a non-resident

NPVAdvisor :

Yes, you can ... just remember that the bank will be dong their own reporting

Customer:

I know that they report everything over $10,000

NPVAdvisor :

I would think that if (1) the transaction was generated from sale of property from India and (2) the owner is a non-resident and (3) the amount of the transfer is > $100,000 THAT is when you wll need to delcare

NPVAdvisor :

right

Customer:

So, for further clarification so I do not do anything wrong.... I can make multiple transfers say 3 transfers for $50,000 each from US account to US account and not file the 3520? Or do I file it because it is coming from a non-citizen... he is a resident of the US.

NPVAdvisor :

Let me just look at the form, to see if there is a timing constraint ... just a moment

Customer:

So, I declare if all three of the conditions you mentioned above are true or any one of the conditions is true?

NPVAdvisor :

ALL THREE, however as I looked for the iming of reporting I found the following:

NPVAdvisor :

I must make a correction ... In looking fr the timing, I see that the information report is for a tax year , so the previos statement would need to be changed to ... "I would think that if (1) the transaction was generated from sale of property from India and (2) the owner is a non-resident and (3) the TOTAL amount of the transferS WITHIN THAT TAX YEAR is > $100,000 , THAT is when you wll need to delcare"

Customer:

So, I declare after all transfers are made at the end of the tax year on 3520?

Customer:

In April when I file my taxes?

NPVAdvisor :

that's right

NPVAdvisor :

my apologies

NPVAdvisor :

(1) From a foreign source (2) totaling more that 100,000 during your tax year

NPVAdvisor :

And again on the capital gains from the sale of the proprty, that is a tax filing issue (either a credit or aa deduction to offset, so you don't pay tax in both places)

Customer:

You said earlier I send in the 3520 twice once for each transfer... or should I file just once for all transfers in April?

Customer:

I understand the Tax part of this but the 3520...a little confused.

NPVAdvisor :

just once, for all transfers for the tax year

Customer:

In April?

Customer:

or I mean byTax deadline April15 of following year?

NPVAdvisor :

As it turns out, again, when looking to be sure of the timing of submission of the 3520, I found that it is ALSO a calendar year form .. does nothing to afftect your taxes, but IS submitted when you submit your taxes for the year

Customer:

Does the 3520 go with my Tax paperwork to the IRS?

NPVAdvisor :

yes

Customer:

I exhausted my questions. I can confidently proceed now. Thanks again for your timely help.

Customer:

If you find anything else you would consider relevant please send me the information to this account or my email.

NPVAdvisor :

I will. The site does not allow emails, but once you rate the questions essentially stays here forever (and we can both come back to post) ... but we really have now covered it all

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3987
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 2 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.


Thanks Sri,

Let me know if you think of anything else, as well.

Lane

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