NRI Selling Property In USA : Process & Tax Implication

As an NRI selling property in the USA is nothing less than a task. Right from understanding US tax and legal obligations to having a knack for the Foreign Investment in Real Property Tax Act (FIRPTA) and capital gain tax, the list is endless.

As if the complications were not enough, the different US state-level property sale taxes add another layer of complexity for NRIs. However, this guide aims to reduce NRIs' unease to some extent.

In this guide, we will discuss every aspect of how NRIs can sell property in the USA, including the entire process, tax implications in both India and the USA, required documents, and more.

Step-by-Step Process For An NRI Selling Property In The USA

NRIs, if you are planning to sell a property in the USA, but are confused about where to start? The following is a step-by-step, clear breakdown of how NRIs can sell a property in the USA.

But before everything, NRIs ensure that if you cannot be physically present in the USA for the sale process, you can appoint an NRI POA for property sale in the USA on your behalf. The PoA (Power of Attorney) is a trusted and reliable individual who acts on your behalf and executes the sale process.

Step 1: Find A Buyer

The first step to sell your property in the US is to finalize the buyer. Now, you might be thinking how NRIs find a buyer in the USA. Well, to do so, you can either work with a local real estate agent or list the property on online platforms.

Additionally, you can market the product directly to potential buyers through local advertisements on your own network.

However, hiring a local real estate agent is a good approach; they have specialized expertise in property marketing and a vast network of potential buyers. Additionally, the agent will help you set the property's competitive retail sale price based on current market conditions and negotiation.

Step 2: Sign The Listing Agreement

As an NRI, if you are selling property in the USA, you will need to sign a listing agreement with your real estate broker. This agreement will serve as a binding contract outlining all terms of the sale, including the broker's duties, commission, duration, and the seller's responsibilities to the broker.

Once you, as a seller, have signed the agreement, the broker will market the property and will handle the entire selling process on your behalf while keeping you in the loop.

Step 3: Negotiate and Accept The Offer

The potential buyer will make you an offer, and you will negotiate it based on your desired property value. Negotiation will involve back-and-forth counteroffers, and whenever you receive a lower-ball offer, do not immediately reject it; hang it around and be open to counteroffers.

Lastly, let your emotions drive your decisions, and if you feel the negotiations are getting difficult, let your agency handle it on your behalf, because emotions can hinder the deal.

Once you and the seller agree on an offer, accept it, and close the negotiation.

Step 4: Tile Company + Escrow Setup

Once the buyer and the seller have both signed the purchase agreement and the agreement for the sale of property in the USA, the next step is to set up title and escrow. The title company and the Escrow work together but perform completely different tasks.

Foreign sellers such as NRIs, NRAs, and green card holders do not know the exact US property transfer rules. Title companies help protect sellers by ensuring that no legal issues arise during and after the real estate sale process for NRIs.

In contrast, Escrow acts as a safe locker during the selling process. It is a third-party company that serves as a neutral party, holding all documents and funds until all conditions are met. In a nutshell, escrow ensures that no one gets paid or receives anything and that everything is done correctly.

Step 5: Reduce FIRPTA via Form 8288-B

When you sell a property, the buyer is obligated to withhold 15% of the gross sale price and remit it to the IRS as a prepayment of the seller's potential capital gain tax liability.

Now, as an NRI, you can lower the tax withholding by applying for a withholding certificate from the IRS by filing Form 8288-B. This form is an application for a Withholding Certificate for Dispositions by Foreign Persons of US Real Property Interests.

To get this certificate:

• You must have a taxpayer identification number.
• Complete a ratified contract and then submit Form 8288-B.
• Notify the buyer in writing that you have applied for a withholding certificate.

Lastly, wait for the IRS's response. This typically takes about 90 days to process and issue a determination, which can be a full exemption, a partial exemption, or a denial of the application.

Step 6: Hire A CPA For Tax Calculations

As a non-resident Indian selling a property in the USA, hiring a certified public accountant (CPA) is essential. This is because US tax laws can be complex. On top of that, understanding cross-border tax implications and other critical calculations requires the help of a CPA with expertise in both US and Indian tax laws.

The CPA will help you with the following:

• FIRPTA withholding calculations
• Capital gain tax calculations.
• State and local tax compliance and calculations.
• US Tax Filing for NRIs and more.

In a nutshell, CPAs help you to ensure NRI real estate tax compliance in the USA.

Step 7: Close The Sale

As a seller, to close a property sale in the SA, you must sign the final paperwork at the closing, which is often managed by the closing attorney or the title company that has handled the funds and the transfer of ownership.

From the seller's side, the key steps to conclude the sale process include.

• Signing the sale deed.
• Providing any necessary documents.
• And then ensuring all the considerations set are met.

Additionally, on the closing day:

• The buyer will send the funds to the title company.
• The title company will deduct the FIRPTA.
• Pays the closing expense and releases the balance to you.

On the closing day, you will receive:

• The closing disclosure
• Net proceeds statement.

As an NRI seller, you must keep all these documents safely for future NRI tax filing after selling property in the USA.

Step 8: Receive FIRPTA Refund

If the Foreign Investment in Real Property Tax Act (FIRPTA) is higher than the actual tax liability, you must file the US income tax return with the IRS to claim the refund.

To receive the refund, please ensure you have either a taxpayer identification number or a Social Security number.

File Form 1040NR for the year of property sales. Any excess amount withheld will be refunded to you by the IRS after processing.

Step 9: Repatriation Of Sale Proceeds (Optional)

To repatriate the money from your US bank account to your Indian NRI account, you can use Bank Wire, Wise, ICICI Money2India, or Western Union.

For a seamless repatriation of funds for NRIs, please ensure to keep proof of:

• Source of funds.
• Closing disclosure.
• And bank statements may be required under FEMA regulations.

It is advisable to consult a professional NRI tax expert or a CA in India to ensure compliance with all NRI taxation rules set by the Indian Income Tax and FEMA for a smooth, compliant transfer.

Step 10: File Taxes In India (If needed)

Your Indian tax filing depends on your residence status. This is explained in the latter part of the blog.

Tax Implications in The USA For NRIs

Let us now discuss the tax implications you will face when selling a property in the US.

Tax Implications in India

Upon selling the property in the USA as an NRI, the tax implications in India depend on your residential status in India:

• NRI
• RNOR
• ROR

Scenario 1: You Are a Non-Resident Indian (NRI)

If your residency status in India is that of an NRI, then:

• You have zero tax implications on the capital gains you have earned in the US by selling the property.
• You are also not required to report the foreign property here in India.
• Your tax implication is limited only to the USA.

Hence, you must file an NRI income tax return only for the income earned in India for NRIs.

Scenario 2: You are ROR (Resident & Ordinarily Resident)

If your residential status in India is ROR, then:

You need to report the sale of property in Schedule FA in India while filing the ITR.

• As an ROR, your global income is taxable in India.
• You must pay capital gains tax in India.
• Can claim the foreign Tax credit (FTC) under the India-USA DTAA for the taxes paid in the US.

Scenario 3: You are an RNOR (Resident but not ordinarily resident).

The tax treatment of RNOR capital gains remains identical to that of NRIs. Meaning has no tax implications on US property sales.

DTAA Benefits For NRIs Under the India-US Treaty

When an NRI sells a property in the USA, the DTAA between India and the USA acts as a holy grail. The primary benefit of the India-USA double taxation avoidance agreement is the ability to claim the FTC (foreign tax credit) in India for capital gains that have already been paid in the USA. This prevents your income from being taxed twice.

Additionally, NRIs selling property in India can claim benefits under a DTAA to avoid being taxed in India and in their residence country.

Key Points NRI Selling A Property In The US Must Consider

Here are a few pointers any seller must consider:

Getting a little Too Emotional: Selling a place where you have spent a few months or even a few years of your life is an emotional process. However, please ensure that these emotions do not hamper your rational judgment.

Hence, do not make any decision in the heat of the moment.

Setting Up an Unrealistic Price: As an NRI selling property in the USA, you must get the best possible price for your home. Now, setting the best possible prices does not mean setting an unrealistic rate; instead, you must have a fair market value.

Because if you set the price too high, you might struggle to attract buyers and stay in the market longer.

Don't be Too Inflexible: As a seller, you need to be flexible when staging your home for sale. Aim to tidy up your house before any buyers come in for a viewing tour. If you are inflexible and do not accommodate the buyer's schedule for a home tour, you might miss out on serious potential buyers who are ready to make an offer.

Not Hiring A Real Estate Agent: From listing your property to marketing it, identifying potential buyers, and negotiating with them, doing it all effectively requires a professional real estate agent.

An expert agent can guide you through the entire selling process and even help you avoid the mistakes that sellers make.

Savetaxs Tip: Consider hiring a professional real estate photographer to capture the images of the house from inside or outside. Buyers tend to skip poor-quality pictures on listing apps.

Documents Required for NRIs To Sell Property In USA

As an NRI selling property in the USA, you will need the following documents.

• Your Passport/ID: Required for your identification.
• The Purchase Deed: This is a mandatory document when selling a home in the US, as it legally transfers ownership of the property from the seller to the buyer.
• Sale Deed: This document serves as a legally binding contract that outlines the terms between the seller and the buyer.
• Closing Disclosure: This document is required by federal law for residential real estate transactions that involve a mortgage.
• Realtor Invoices: You will need a clear, legitimate invoice from your real estate professional.
• Improvement Bills: These bills are required to provide a clear view of the expenses incurred for capital improvements to enhance property value.
• Depreciation Schedules: This is also an important document to carry as it provides a detailed report on the property's depreciation over time.
• Home Inspection Report: Better to carry.

In addition to these documents, other documents may be required.

The Bottom Line

NRI selling property in the USA involves a lengthy process, from preparing your property for sale to pricing it correctly, hiring a real estate agent, listing the property, reviewing potential buyers' offers, and understanding the tax implications. Handling all this as a non-resident foreigner is quite overwhelming.

However, cutting to the point, as an NRI, this entire process is quite tedious to handle if you lack a solid grasp of core taxation and property transaction processes. Hence, it is advisable to take the help of an NRI real estate and taxation expert. And when we talk about NRI taxation and real estate expert, Savetaxs is the name to trust.

We have been helping NRIs in the US sell their properties in compliance with the US Laws. Our experts bring 30+ years of experience to the table in US real estate and taxation compliance.

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