Q: I bought a condo in 1999 in Mumbai, India, to use when we visited the city. It has been rented for a total of six to seven years, but not continuously. I have not taken any depreciation nor reported any income from the property. Is there any way I can sell the condo and bring the proceeds from the sale of that property back to the United States?
A: Your question may seem simple, but it’s actually quite complicated.
Let’s start with the transfer of funds from India to the United States. If you’ve sold the property in India and deposited the proceeds from the sale into a bank there, you would then request that the bank in India transfer the funds to your bank account in the United States.
At your bank in India, you’d need to find out the process for sending the funds from India to your bank in the United States. Usually, the transfer of funds from a bank in one country to another is not that complicated.
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We suspect, however, that your question has more to do about the taxation implications of the money than the process of transferring the money to the United States.
You should know that if you own real estate outside of the United States, you will have to figure out if the real estate is a rental property, vacation property, or second residence. Depending on the number of days that you rent the property and the number of days you stay at the property will determine whether you fit into one or more of these categories. In your case, your property was likely a second home when it was not rented at all during a given year, but it may be a rental property or vacation home during those years where it was rented for more than 15 days during any calendar year.
Depending on whether the home is considered a rental property or second home, on your federal income tax returns, you might have the right to deduct certain expenses relating to your ownership of the home. You might also have the right to depreciate the property and would have declared any rental income you earned. We suspect you didn’t take any depreciation, deductions or declare any income from your rental, but we don’t know for sure from your question.
And, if you sold the property and made a profit, you may owe taxes on the profit to the IRS, particularly if you are a citizen or permanent resident of the United States.
U.S. tax law is quite complicated, more so when it comes to ownership of real estate and other assets abroad. The rules differ for United States citizens that live abroad, United States citizens that own property abroad but live in the United States, and foreign residents living in the United States but owning property outside of the United States. The subject can get even more complicated when you have to determine if any tax treaties exist and apply to you and your situation.
You need to consult with a tax practitioner with experience in international real estate holdings to get specific information on these questions. Be prepared to discuss your country of residence, the location of your employment, where you file income taxes, when you purchased the property, whether you purchased the property in your own name or in the name of an entity, the number of days the property was leased out in each given year, the number of days you stayed in the property during those years, and the costs to purchase and sell the property.
These are just a few of the questions that you might face. If you have documentation on these issues, bring it with you when you talk to the tax practitioner. You should understand that the Internal Revenue Service can audit your tax return and ask questions about your ownership of foreign real estate, your foreign bank accounts, and whether you transfer the money from India to the United States. We’re inclined to think that a large deposit from a foreign country into one of your bank accounts could trigger a review of your bank accounts and, perhaps, of your income tax filings.
We have read in the news of the limitations that the Internal Revenue Service has in reviewing taxpayer accounts and the few that they audit, but the question for you when you go and talk to a tax professional is what you should do if you sold the property and want to bring the money to the United States.
We know our answer is general, but we wanted to give you a flavor of the process and what to expect going forward. Let us know what you find out and we can let our other readers know more about the issue.
(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)