If you live in the United States and own property in India, your Indian rental income and property sale profits are not “outside” the US tax system. The IRS expects you to report Indian rental income on your US tax return even if the rent stayed in India, even if the tenant paid in INR, and even if you already paid tax in India. This is one of the most common areas where NRIs unintentionally make mistakes, and it is also one of the top triggers for IRS notices.
Many NRIs also ask:
- Will I be taxed twice on the same income?
- How do I report capital gains from selling Indian property?
- Can I claim deductions or depreciation?
If this feels confusing, you are not alone. Indian taxation and US taxation work very differently. In India, rental income is usually handled under “Income from House Property,” while in the US it is reported using specific schedules and forms, with different rules around depreciation and foreign tax credits.
This article explains, in simple language, how NRIs should report Indian rental income and Indian property capital gains on a US tax return, and how DTAA + Foreign Tax Credit can prevent double taxation.
Who is this article for?
This guide is for you if:
- You live in the US and own a flat/house in India
- You earned rent from that property in 2023–2024 (or any year)
- You sold Indian property and earned capital gains
- You’re filing a US return (Form 1040)
This applies even if:
- the rent stayed in India
- you never transferred money to the US
- the tenant paid in INR
- TDS was already deducted in India
The big rule: the US taxes worldwide income
The most important concept is simple:
If you are treated as a US tax resident, the IRS taxes you on worldwide income.
You are generally a US tax resident if you are:
- a US citizen
- a Green Card holder
- or you meet the “Substantial Presence Test” (based on number of days in the US)
That is why:
- You must report Indian rental income in the US
- Indian property sale gains must be reported in the US
Why this matters (and why NRIs get notices)
Many NRIs assume:
- “India income is India problem”
- “Rent never came to the US so IRS won’t know”
- “Tax already paid in India so nothing to do in US”
But the risk is real. Incorrect foreign income reporting can lead to:
- IRS notices and follow-up questions
- paying tax twice due to missed Foreign Tax Credit
- expensive amended returns later
- compliance concerns during Green Card renewal/citizenship review
Part 1: How to report Indian rental income in the US
Where does Indian rental income go in the US return?
Indian rental income is reported on:
Schedule E (Form 1040)
Schedule E is the IRS section for rental income (like the US version of “Income from House Property”).
So:
- Indian rent → Schedule E
- US rent → Schedule E
- same reporting style
What amount do you report?
On Schedule E you report:
- total rent received (gross rent)
- converted to USD
Currency conversion tips:
- use annual average exchange rate OR transaction-date rate
- choose one method and stay consistent
- keep basic backup (rent receipts, bank statement summary)
What expenses can you deduct?
The IRS taxes rental profit, not total rent.
Common allowed rental deductions include:
- repairs and maintenance
- society/maintenance charges
- insurance
- property management fees
- municipal/property taxes paid in India
- home loan interest
- legal/professional fees related to rental
This is why correct reporting matters. If you skip expenses, you pay extra tax for no reason.
Part 2: Depreciation (most confusing word for NRIs)
What is depreciation?
Depreciation is a tax deduction. It means:
- the IRS allows you to deduct part of the building cost every year
- as “wear and tear”
- even if the property value increases in real life
Depreciation reduces:
- taxable rental income today
- and affects capital gains later
How does depreciation work for Indian rental property?
For foreign rental property, the IRS generally uses:
- MACRS (Modified Accelerated Cost Recovery System): IRS depreciation system
- ADS (Alternative Depreciation System): slower depreciation method used for foreign property
For foreign residential rental property, depreciation is typically:
- 30-year straight-line method
- straight-line = same amount every year
Warning: IRS assumes depreciation even if you didn’t claim it
This is the key line every NRI should remember:
If you never claimed depreciation, the IRS still assumes you did.
Why it matters:
- depreciation reduces your “basis”
- basis = your purchase cost used to calculate profit when you sell
- lower basis = higher taxable capital gain later
So skipping depreciation can hurt you twice:
- higher rental tax now
- higher capital gains tax later
Take this quick rental example
Rent received: ₹6,00,000
Expenses: ₹2,00,000
Depreciation: ₹1,50,000
Net taxable rental profit:
- ₹6,00,000 – ₹2,00,000 – ₹1,50,000
- = ₹2,50,000
Then:
- convert ₹2,50,000 to USD
- report on Schedule E
If depreciation is missed:
- profit becomes ₹4,00,000 instead of ₹2,50,000
- which increases your US tax bill
Part 3: What tax rate applies on Indian rental income?
There is no flat tax rate for foreign rent.
Rental profit is taxed:
- at your normal US federal tax slab
- plus state tax (if applicable)
States like California tax worldwide income and may not allow foreign tax credits the same way federal tax does. So even if federal tax reduces due to FTC, state tax may still apply.
Part 4: DTAA + FTC (how to avoid double taxation)
What is DTAA?
DTAA = Double Taxation Avoidance Agreement.
Simple meaning:
- India and US have a treaty system to reduce double taxation
- but you still must report income in the US
What is FTC (Foreign Tax Credit)?
FTC means:
- you get US credit for taxes already paid in India
The key form is:
Form 1116
- Form 1116 is the IRS form where you claim credit for Indian tax paid (like TDS)
- This helps prevent foreign rental income double taxation
Read more: Foreign Tax Credit: Maximizing Tax Savings for Global Income
Simple FTC logic
If:
- India tax paid is lower than US tax
- you may pay the difference in the US
If:
- India tax paid is higher than US tax
- you may not owe extra federal tax
- but credit has limits and must be calculated properly
Common FTC mistakes include:
- wrong categorization
- missing tax proof
- mismatch between income and tax paid
Part 5: Sold property in India? How to report capital gains in the US
Do you need to report the sale in the US?
Yes.
You must report it even if:
- capital gains tax was paid in India
- buyer deducted TDS
- money never came to the US
US reporting forms:
- Form 8949 (lists the sale transaction)
- Schedule D (summarizes total gains/losses)
- Form 8949 + Schedule D is the US capital gains section
US taxes is not a DIY topic for most NRIs
If you owned Indian property in 2023–2024, this is not the safest area to DIY. A small mistake in depreciation, Foreign Tax Credit mapping, or capital gains reporting can cost thousands over time. The smart approach is to use a structured template and get a specialist review before filing.
Tap to consult with experts for free
Why US capital gains looks different than India
In India:
- indexation may reduce taxable gains
- different long-term rules apply
In the US:
- no indexation benefit
- depreciation reduces basis
- currency conversion impacts gain
This is why:
- India gain ≠ US gain
- and many NRIs see higher gains in the US even after paying Indian tax
Common mistakes NRIs make (high cost)
The most common errors include:
- not reporting Indian rent at all
- reporting rent but skipping deductions
- missing depreciation
- incorrect currency conversion approach
- claiming FTC incorrectly (Form 1116 errors)
- not reporting property sale gains
- ignoring FBAR/FATCA reporting when money stays in Indian accounts
These mistakes can lead to:
- IRS notices
- penalties
- expensive amended returns
- long-term compliance stress
What to prepare before filing (simple checklist)
For rental income (Schedule E):
- rent received summary
- expense breakup
- loan interest certificate
- depreciation schedule
For Foreign Tax Credit (Form 1116):
- Form 16A / TDS certificate
- challans / proof of Indian tax paid
For property sale (Form 8949 + Schedule D):
- purchase deed
- improvement receipts
- sale deed
- transaction cost details (brokerage, registration, etc.)
FAQs
Do NRIs pay US tax on Indian rental income?
If you are a US tax resident, yes. You must report it on Schedule E and pay tax on net profit after deductions.
How can I avoid double taxation?
Claim Foreign Tax Credit using Form 1116 for Indian taxes paid under DTAA framework.
Do I need to report Indian property sale in the US?
Yes. Report it using Form 8949 and Schedule D, even if tax was already paid in India.
What if I never claimed depreciation earlier?
The IRS assumes depreciation was allowable. This can increase your taxable gain later. You may need a correction strategy.
