Tax

Selling Property Abroad as a U.S. Resident: Gain, Foreign Tax Credit, and Repatriation

How the U.S. taxes the sale of a flat or land abroad: computing the gain in dollars, why there is no indexation, how tax withheld at source becomes a credit on Form 1116, and what your accountant abroad handles. Written with India as the worked example.

By Girija Srinivasan, CA4 min · 5 slidesUpdated November 8, 2026

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Two Returns, One Sale

The country where the property sits taxes the gain first. In India the buyer withholds tax at source under section 195 when the seller is a nonresident, at a higher rate than a resident seller faces, unless a lower-deduction certificate is obtained in advance.
The U.S. then taxes your worldwide gain on the same sale, as a U.S. resident, and gives credit for the foreign tax on Form 1116.
Different rules on each side: India allows indexation and reinvestment relief under sections 54 and 54F; the U.S. allows neither.
Holding period: more than one year is long-term in the U.S. for the lower capital gains rate; India uses its own two-year test for immovable property.
Both returns must use the same sale price and date; we coordinate with your Indian CA so the figures match.

Computing the U.S. Gain

Basis: purchase price plus capital improvements and acquisition costs, each converted to U.S. dollars at the exchange rate on the date paid. A flat bought in 2008 uses 2008 rates.
Sale proceeds: converted at the rate on the sale date, less brokerage, legal, and transfer costs.
Because the rupee has weakened against the dollar over most long holding periods, the dollar gain is often smaller than the rupee gain, and occasionally a rupee gain is a dollar loss.
Inherited property takes a basis equal to fair market value at the date of death, converted at that date; gifted property takes the donor's basis.
Depreciation claimed on a rental property abroad in prior U.S. returns is recaptured on the sale, at up to 25%.

The Foreign Tax Credit on the Sale

The tax withheld at source is not the final Indian tax; your CA files the Indian return, and the tax finally owed after indexation and any section 54 relief is the creditable figure.
Form 1116, passive basket for most individual sales; the credit is limited to the U.S. tax attributable to the foreign gain, with a ten-year carryforward for excess.
Timing mismatch: Indian tax may be finalized in a later U.S. year. You can claim the credit on an accrual basis, or amend when the Indian return is assessed; pick one method and stay consistent.
Net investment income tax (3.8%) applies to the gain for higher-income filers and cannot be offset by the foreign tax credit.
State tax: California and most states tax the gain too and give no foreign tax credit, which is often the largest unexpected cost of the sale.

Getting the Money to the U.S.

Repatriation is an India-side process: Form 15CA and a CA certificate on Form 15CB, the bank's documentation of the source of funds, and the FEMA limit of USD 1 million per financial year from NRO balances for most sale proceeds.
The transfer itself is not U.S. income; the gain was taxed on the sale, not on the wire.
Proceeds sitting in an NRO account before transfer push that account's peak balance up, often tripping FBAR and Form 8938 thresholds for the first time.
Transfers funded from a bank account are not subject to the 1% U.S. remittance excise tax that began in 2026, which targets cash-funded outbound transfers.
Keep the sale deed, the TDS certificate (Form 16A), the Indian return, and the bank remittance advice together; the IRS asks for all four if the credit is questioned.

Common Mistakes

Using today's exchange rate for a purchase made fifteen years ago, which overstates basis and understates the gain.
Claiming the full TDS as a credit when the Indian return produced a refund.
Assuming section 54 reinvestment relief eliminates the U.S. gain; it does not carry over.
Forgetting depreciation recapture on a flat that was rented out and depreciated on earlier U.S. returns.
Need help? Rubric Financial handles the U.S. side of a property sale abroad and coordinates with your Chartered Accountant on the Indian return and repatriation paperwork.

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Educational content, not tax, legal, or accounting advice. Confirm with a CPA before acting.

Frequently asked questions

Do I pay U.S. tax when I sell property in India?

Yes, if you are a U.S. tax resident. The U.S. taxes your worldwide capital gain, computed in dollars using the exchange rates on the purchase date and the sale date. The Indian tax you finally owe, after your Indian CA applies indexation and any reinvestment relief, is credited against the U.S. tax on Form 1116. State tax, in California for example, applies on top with no foreign tax credit.

If I reinvest the proceeds in another property in India under section 54, is the U.S. gain also exempt?

No. Section 54 and 54F relief exist only in Indian law. The U.S. computes the gain on the sale regardless of what you do with the proceeds, and the only U.S. deferral for real estate, a section 1031 exchange, does not allow foreign property to be exchanged for foreign property with a U.S. tax benefit in most circumstances. Reinvestment reduces the Indian tax, which in turn reduces the foreign tax credit available.

Why is my dollar gain different from my rupee gain?

Because basis and proceeds are converted at the exchange rates on their own dates. The rupee has weakened against the dollar over most long holding periods, so a flat bought at 45 rupees to the dollar and sold at 85 shows a much smaller dollar gain than rupee gain, and can even show a dollar loss. The U.S. taxes the dollar figure.

How do I bring the sale proceeds to the U.S.?

That is an India-side process handled by your Chartered Accountant: Form 15CA, a CA certificate on Form 15CB, source-of-funds documentation for the bank, and the FEMA limit of USD 1 million per financial year on repatriation from an NRO account. The transfer itself is not taxable in the U.S., but the NRO balance before transfer will usually require an FBAR and Form 8938.

The TDS was deducted at a high rate. Do I get all of it back as a U.S. credit?

Not automatically. The creditable amount is the Indian tax finally owed on the Indian return, not the amount withheld, and the credit is capped at the U.S. tax on that gain. Excess credit carries forward ten years. If a lower-deduction certificate was not obtained before the sale, your CA claims the excess TDS as a refund in India rather than you claiming it in the U.S.

Accounting

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Selling Property Abroad as a U.S. Resident: Gain, Foreign Tax Credit, and Repatriation

Two Returns, One Sale

Computing the U.S. Gain

The Foreign Tax Credit on the Sale

Getting the Money to the U.S.

Common Mistakes

Frequently asked questions

Do I pay U.S. tax when I sell property in India?

If I reinvest the proceeds in another property in India under section 54, is the U.S. gain also exempt?

Why is my dollar gain different from my rupee gain?

How do I bring the sale proceeds to the U.S.?

The TDS was deducted at a high rate. Do I get all of it back as a U.S. credit?

Accrual Accounting: When to Switch From Cash Basis

When Does a Small Business Need a Fractional CFO?

Month-End Close Checklist for Small Businesses

Want a CPA to own your filings?

Selling Property Abroad as a U.S. Resident: Gain, Foreign Tax Credit, and Repatriation

Two Returns, One Sale

Frequently asked questions

Do I pay U.S. tax when I sell property in India?

If I reinvest the proceeds in another property in India under section 54, is the U.S. gain also exempt?

Why is my dollar gain different from my rupee gain?

How do I bring the sale proceeds to the U.S.?

The TDS was deducted at a high rate. Do I get all of it back as a U.S. credit?

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Accrual Accounting: When to Switch From Cash Basis

When Does a Small Business Need a Fractional CFO?

Month-End Close Checklist for Small Businesses

Want a CPA to own your filings?