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International tax question

International tax question
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Answered in 1 minute by:
3/21/2018
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 17,610
Experience: 15years with H & R Block. Divisional leader, Instructor
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Hello, I'm Robin. Welcome to JustAnswer. I'm reviewing your question now and typing up my reply. I'll post that in just a few moments.

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Either option will mean US tax for you unless you have owned it and lived in it for at least 2 years out of the last 5 prior to selling.

The rental of US located property is taxable and you would need to report in the US the rental activity.

What do you want to do with the property?

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Customer reply replied 1 month ago
I have owned it for last 12 years, lived for 7 years, rented for 5 years. I am reporting rental income and filing US taxes as well. I pay taxes in India, and get credit due to Double Tax Avoidance treaty. The question is if I sell it, how much tax to pay in US and how much in India. In India, I am in 25% tax bracket (highest). How will depreciation be accounted in US?

You will pay tax on the gain. That is the difference in the original cost plus improvements less depreciation and the sale price less cost to sale.

The depreciation will be taxed under recapture rules. That amount is 25% rate for recapture tax.

There is no exclusion for gain because you have not lived there for 2 out of the 5 years prior to sale. All gain will be taxed. The rate is unknown as that is set at the rate for your total income.

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Customer reply replied 1 month ago
What is depreciation recapture tax?

You received a tax benefit every year for depreciation of the property. When you sale, if you have again, you also pay tax on the amount of depreciation you claimed previously. It is called Depreciation Recapture.

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You will see this all on the Form 4797 you must file to report the sale.

A positive 5 star rating is appreciated so I am credited for assisting.

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Customer reply replied 1 month ago
Do you know how India taxes account of property sale in US. Although I am US citizen, I have to file India taxes on worldwide income as I live there.

Not really off the top of my head. I can check for you.

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Customer reply replied 1 month ago
Sure. Also, I have accrued tax credit (Paid excess in India), Would I be able take that credit to cover for the US property sale? Are there any constraints or limitations?

I will check to see if that is covered too

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It looks like a 20% rate of tax is on assets sold (long term held which is 3 years or more) that are not securities.

The credit applies for tax paid of the same kind so the credits you have that are carried over may not apply.

I hope this has been helpful

A positive 5 star rating is appreciated so I am credited for assisting.

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Customer reply replied 1 month ago
Sorry, I was drawn into something. On the second line above regarding credits, this is for US taxes. I have had salary income in India last 5 years, for which I got the credits. Just to clarify, I will not be able to use that for property sale.

You would need to report the credit for same type of tax.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 17,610
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified
Robin D. and 87 other Tax Specialists are ready to help you
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Customer reply replied 1 month ago
Great. Thank you very much.
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Satisfied Customers: 17,610
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