Question on capital gain on sale of foreign asset: I am currently US citizen and recently sold my house in India. I am considering reinvesting profit earned on this house. With reinvesting the profit for 3 years in Indian Govt. bonds, I don’t have to pay any capital gain tax in India. However, I probably have to pay the tax in US. I have 2 questions:
1. When do I need to pay tax in US? The year when deal is closed or at the time of Repatriation? I am keeping money in a bank in India and will be happy to keep if taxes could be deferred.
2. Is there any reinvestment option in US to save capital gain now?
It is reported in the year sold. If it was a rental property, you might be able to avoid paying taxes on any capital gain through a IRC 1031 like-kind exchange. The qualifying property for the 1031 exchange must be another foreign property. Note, that there are very specific timelines within which you need to purchase a new property, as well what you do with the money in the meantime. If you don’t qualify for a 1031 exchange, you may also be able to exclude some or all of the property gain through IRC 121.
– Law Office of Kunal Patel, LLC