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I sold a house in India in May 2022 and paid Tax Deducted at Source in India. I am planning on repatriating the money to my US bank. I have been declaring the interest income from Indian bank account on my US tax return.

  1. How do I declare the repatriation money and show that I already paid the capital gain tax in India on my US federal return? What forms do I file? Can I claim foreign tax credit?

  2. Do I have to pay Pennsylvania State tax on this capital gains?

Thanks.

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  • You presumably are a US tax resident, and if so, are your Indian bank accounts NonResident Ordinary (NRO) accounts as required by Indian law? If the sale proceeds were deposited into an ordinary (non-NRO) savings account in India that you still hold (even though you were not entitled to have such an account under Indian FEMA law), you will encounter considerable difficulty in getting the money out of India at all; indeed it might be impossible. Sep 10 at 14:20
  • This question as been answered here already, and thus should be closed. However, it is not possible to vote to close it while there is a bounty on it. Sep 10 at 14:29
  • Yes. I have the amount in NRO account and I understand that I have to do 15CA and 15CB and I will get tax credit due to DTAA. Could someone give me information on Pennsylvania tax? Do I have to pay that state tax? For $100,000 capital gain, PA tax would be a lot.
    – user65985
    Sep 11 at 10:41

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As a US (and Pennsylvania) tax resident, you need to pay Federal income tax as well as Pennsylvania State income tax on the long-term capital gains from the sale of the property in May 2022. On your 2022 Federal income tax return (to be filed by April 15, 2023), you can claim a tax credit against the Federal tax due for the tax withheld (Tax Deducted at Source) in India. You do this by filing Form 1114 along with your Form 1040. Effectively, you avoid double taxation, but your net tax bill is the larger of the tax due to India and the tax due to the US (and Pennsylvania).

With regard to Pennsylvania taxes, the question is how capital gains are treated on your Pennsylvania tax return. Some States work off the Federal tax return: you report the Adjusted Gross Income from your Federal return to the State, make some adjustments (e.g. subtract off things that the State does not tax, such as interest income from Federal bonds or Social Security income, add in things that the State does tax such as income from municipal bonds issued by other States) and apply a flat tax rate to the rest with no special treatment for capital gains etc. Others, perhaps including Pennsylvania, might have a more nuanced approach where long-term capital gains are taxed separately (and hopefully at a lower rate) than other income. I believe that the tax rate for Pennsylvania is a little over 3%?

What you do need to be a tad concerned about is that you missed the June 15 deadline for payment of Estimated Taxes for the second quarter, both to the IRS and Pennsylvania. If you are a salaried person with relatively small investment income, perhaps you never needed to file Estimated Tax returns in the past. The September 15 deadline for payment of Estimated Taxes for the third quarter is coming, and perhaps, depending on what your tax advisor says, maybe making payment soon will avoid penalties for not having paid sufficient taxes as you go along.

Note: for cash-basis taxpayers (as almost all individuals in the US are), the taxable event occurs when the income is realized (whether in the US or abroad) and estimated taxes need to be paid by the next quarterly deadline. The money in your NRO account is your own money, and no taxable event occurs when you transfer your own money from your NRO account to your US account.

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  • I thought I will have to pay estimated tax only after transferring the money to US bank. This information helps a great deal.
    – user65985
    Sep 11 at 18:10

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