I inherited property in India and am selling it: what do I owe the IRS?

Who this is about

This page is for a US tax resident (a citizen, a green card holder, or a visa holder who meets the substantial presence test) who inherited a flat, house or land in India and is selling it. A US resident is taxed on worldwide income, so the sale belongs on the US return as well as the Indian one. Most of the confusion online is about the Indian tax deducted at source; the US side gets little attention and is where people overpay or under-report.

Your US basis: the value at death, not the family's purchase price

Under section 1014 of the Internal Revenue Code, the basis of property acquired from a decedent is generally its fair market value at the date of death. The IRS answers the same way in its FAQ on gifts and inheritances. Your parents or grandparents may have bought the property decades ago for a small sum; for US tax, that cost is replaced by its value on the day the owner died. An alternate valuation date applies only when the executor files a US estate tax return and elects it.

That value has to be supported. Get a valuation as of the date of death from a registered valuer in India, ideally soon after the death, and keep the report. A valuation commissioned years later for a sale is weaker evidence.

Two exchange rates, not one

The IRS says you must report in US dollars, using the exchange rate prevailing when you receive, pay or accrue the item. For an inherited property that means two conversions:

• Basis: the rupee value at death, converted at the rate on the date of death.
• Amount realized: the rupee sale price, less selling costs such as brokerage, converted at the rate on the date of sale.

Your US gain is the difference in dollars. Because the rupee has generally weakened against the dollar over long periods, a property that rose in rupees can show a much smaller gain in dollars, or none. The rupee gain India taxes and the dollar gain the US taxes are different numbers, and both are correct.

Long-term, however soon you sell

Under section 1223(9), a person who inherits property and sells it within a year of the death is treated as having held it for more than a year. So the gain is a long-term capital gain on the US return, taxed at the long-term rates, whether you sell in the first month or the tenth year.

Net investment income tax

The 3.8% net investment income tax in section 1411 applies to the smaller of your net investment income and the amount by which your modified adjusted gross income exceeds USD 200,000 (single) or USD 250,000 (married filing jointly). A large property gain can push you over the line in the year of sale. The foreign tax credit does not reduce this tax: Treasury regulation 1.1411-1(e) says foreign income taxes allowed as a credit against income tax are not allowed against the net investment income tax.

The Indian side, in brief

India taxes the sale too, and gets the first claim because the property is in India. As published by the Income Tax Department:

• Cost and holding period. For inherited property, India uses the previous owner's cost and counts the previous owner's holding period, so the asset is usually long-term (held over 24 months).
• Rate. For transfers on or after 23 July 2024, long-term gains are taxed at 12.5% without indexation, plus surcharge and cess where they apply.
• Tax deducted at source. When the seller is a non-resident, the buyer must deduct tax from the payment, and in practice the deduction is often computed on the full sale price rather than the gain. A lower-deduction certificate from the Income Tax Department, obtained before the buyer pays, can reduce it. Any excess is recovered by filing an Indian return.

Indian rules change often and the TDS mechanics depend on your facts, so treat this as orientation as published on 2 October 2026 and check with a Chartered Accountant before you sign.

The foreign tax credit

The gain from selling real property outside the US is foreign-source income (section 862(a)(5)), so the Indian tax on it can be credited against the US tax on the same gain, generally on Form 1116. IRS Publication 514 sets the tests: the tax must be imposed on you, paid or accrued, your legal and actual foreign tax liability, and an income tax. Two consequences matter:

• Only the final Indian tax counts. TDS withheld above your actual Indian liability is not creditable; you get it back by filing in India.
• The credit is capped at the US tax on that foreign income. Where the Indian tax is higher than the US tax on the dollar gain, often because the rupee gain is larger, the excess does not reduce US tax on other income this year.

Reporting around the sale

• Form 3520 for the inheritance itself. A US person who received more than USD 100,000 in a year from a nonresident alien or a foreign estate reports it on Form 3520 (IRS, Instructions for Form 3520). The inheritance is not income, but the form is due with your return for the year you received it, and the penalty for not filing is 5% a month up to 25%.
• FBAR and Form 8938. The sale proceeds will sit in an NRO account; its highest balance counts toward both reports.
• Bringing the money over has its own Indian paperwork and limits, covered in the answer on moving money from India to the US.