US tax for a resident NRI

Question

I am a recent resident and filing for my taxes. However I have investments in India (stocks and real estate). I would like to know since I am paying taxes for those investments in India, would it be required to declare them in the US ? Also for the ease of operation, I am transferring my stocks to my brothers account. The ownership would thus transfer over. Would this mean that I would have to still report the stocks after the transfer or only until the transfer is done.

I also intend to sell my real estate investments and bring them to the US. Would I need to pay tax for the same in US (Just to bring in the money after sale) Regards, Anand

Answer 1

If you are tax-resident in the US, then you must report income from sources within and without the United States. Your foreign income generally must be reported to the IRS. You will generally be eligible for a credit for foreign income taxes paid, via Form 1116.

The question of the stock transfer is more complicated, but revolves around the beneficial owner. If the stocks are yours but held by your brother, it is possible that you are the beneficial owner and you will have to report any income.

There is no tax for bringing the money into the US. As a US tax resident, you are already subject to income tax on the gain from the sale in India. However, if the investment is held by a separate entity in India, which is not a US domestic entity or tax resident, then there is a separate analysis. Paying a dividend to you of the sale proceeds (or part of the proceeds) would be taxable. Your sale of the entity containing the investments would be taxable. There are look-through provisions if the entity is insufficiently foreign (de facto US, such as a Subpart-F CFC). There are ways to structure that transaction that are not taxable, such as making it a bona fide loan (which is enforceable and you must pay back on reasonable terms). But if you are holding property directly, not through a foreign separate entity, then the sale triggers US tax; the transfer into the US is not meaningful for your taxes, except for reporting foreign accounts.

Please review Publication 519 for general information on taxation of resident aliens.

Answer 2

1. Please declare everything you earn in India as well as the total amount of assets (it's called FBAR). The penalties for not declaring is jail time no matter how small the amount (and lots of ordinary people every 2-3 years are regularly sent to jail for not declaring such income). It's taken very seriously by the IRS - and any Indian bank who has an office in the US or does business here, can be asked by IRS to provide any bank account details for you. You will get deductions for taxes already paid to a foreign country due to double taxation, so there won't be any additional taxes because income taxes in US are on par or even lower than that in India. Using tricks (like transferring ownership to your brother) may not be worth it. Note: you pay taxes only when you realize gains anyway - both in India or here, so why do you want to take such hassles.

2. If you transfer to your brother, it will be taxed only until you hold them. Make sure you have exact dates of gains between the date you came to US and the date you "gifted" to your brother. As long as you clearly document that the stocks transferred to your brother was a gift and you have no more claims on them, it should be ok, but best to consult a CPA in the US. If you have claims on them, example agreement that you will repurchase them, then you will still continue to pay taxes.

3. If you sell your real estate investments in India, you have to pay tax on the gains in the US (and you need proof of the original buying cost and your sale). If you have paid taxes on the real estate gains in India, then you can get deduction due to double tax avoidance treaty. No issues in bringing over the capital from India to US.