I was an indian citizen and now i have become U.S. Citizen with OCI card just 1 year back and working & residing in USA . I file my india aw well as US Tax Return . Please clarify the below in regard with my rental income from house property in india : (1) I have one independent floor and one apartment in India which are on rent . As i get 33% standard deduction for all rental property expenses in India ITR , but i need to take deduction of all actual expenses & depreciation of rental house property in US Income Tax Return and thus i need the total cost of rental house (without cost of plot or land share) to charge depreciation on it every year . Here , when i see the india property papers or receipts of payments made to builder , i just find price of apartment in Sale agreement without any break up with price of plot or land share . Now , my question is what price should i take to charge depreciation on india rental house in my US Tax Return ? (2) Can i also include the cost of all capitalized expenses (done from time to time) in the original buying cost of this rental house to start depreciation deduction in my US Tax Return ? (2) Can i capitalize the interest of home loan (interest paid to bank during period of 6 yrs of under construction) to add to the cost of rental house at the time of sale if in future or for calculating cost of rental property for depreciation because i just want to continue taking only every current year's home loan interest as deduction from every current year rental income and just capitalizing the total home loan interest paid during construction years before possession of this house ?
1) Calculate the WDV till 31.12.2018. Charge depreciation on this value for 2019. Depreciated value is original cost as per sale deed less accumulated depreciation till 31.12.2018.
2) Yes, you can but you should have supporting documents to claim them.
3) Yes you can but I am not aware of US taxation how they give the benefit.
Thanks
Hi
We don't deal in US tax laws. The answers are on the basis of general principles of laws.
1. If the US laws allow depreciation on costs excluding the land cost, you can get a valuation of the property done and accordingly charge depreciation.
2. Yes.
3. Yes.
#subject to US tax laws.
We would advise you to consult someone in US for these issues.
Capitalization -
Capitalization only will be done only till the construction of property. So all the cost incurred till completion of property will be capitalized (including interest till construction date).
All other expense not in nature of capital will be expense out.
Other expense which are capital in nature after construction of property can be capitalized.
For Interest incurred on home loan after construction of property separate deduction is available in Indian income tax laws. Hopefully same would be case in US also.
For cost of plot & building.-
1. Cost of plot - Cost as per Circle rates can be considered or you can also go for valuation of property.
2. Cost of Building - Once you find cost of plot, deduct it from total cost of property and consider it as cost of building.
Hi
1.Usaully depreciation to be charged on WDV .
2.Yes it can be done
3.Yes ,it is advisable to check US tax laws as wel in this matter.
Dear Sir,
Hope you are doing well !!
1. Depreciation should be charged on written down value as on 31/12/2018.
It is advisable to get the property valuation report for the same.
2.Yes subject to proper bills.
3. Yes subject to US tax laws.
Thanks & Regards,
Payal Chhajed
Please let me know if my understanding is correct as below after reading the above reply : (1) My main point to ask is that in india property registry papers just mention the full buying price of flat and there is no system to give break-up of share of plot price and each flat building price because 3 or 4 flats are constructed on same one piece of plot . Thus , can i just take the full cost or price of flat written in property registry papers for charging depreciation in my US Tax Return because no break-up is mentioned in india for buying -selling of multistory flats ? I don't think if there is any use of getting current property valuation because to start depeciation , we need original buying price which i paid to builder and not current valuation by valuer , ... am i right ? (2) What is written down value of flat ? I bought flat few years back , but my flat was firstly let out in this year , so the actual buying value will be taken for first year depreciation , ....... right ? (3) As i understand that now i can add up the home loan interest of pre-construction period of 6 years as as capital expenditure to the original registry papers purchase cost of my india flat to find out the total value of flat to start charging depreciation on this total value (original purchase price + all 6 pre-construction yrs interest paid) from this year in my US Tax Return , ...... is this ok ? (4) As i understand that i can also add up kitchen tile and stone and wood work expenditure (just done 1 year back) to the original purchase cost of flat to start charging depreciation on this total value (original purchase price + all 6 pre-construction yrs interest paid + tile,stone & wood work exp.) from this year in my US Tax Return , ...... is this ok ?
1. Valuation can be done so as to split your purchase price of the property into the respective land and building components as on the date of purchase.
2. Depreciation shall start right from the year of purchase. Purchase cost less depreciation over the years shall give you the WRITTEN DOWN VALUE of the property at the starting of this year on which you can charge depreciation now.
3. Yes
4. Yes
Waiting to get answer if my understanding is correct as below after reading the above reply : (1) My main point to ask is that in india property registry papers just mention the full buying price of flat and there is no system to give break-up of share of plot price and each flat building price because 3 or 4 flats are constructed on same one piece of plot . Thus , can i just take the full cost or price of flat written in property registry papers for charging depreciation in my US Tax Return because no break-up is mentioned in india for buying -selling of multistory flats ? (2) What is written down value of flat ? I bought flat few years back , but my flat was firstly let out in this year , so the actual buying value will be taken for first year depreciation , ....... right ? (3) As i understand that now i can add up the home loan interest of pre-construction period of 6 years as as capital expenditure to the original registry papers purchase cost of my india flat to find out the total value of flat to start charging depreciation on this total value (original purchase price + all 6 pre-construction yrs interest paid) from this year in my US Tax Return , ...... is this ok ? (4) As i understand that i can also add up kitchen tile and stone and wood work expenditure (just done 1 year back) to the original purchase cost of flat to start charging depreciation on this total value (original purchase price + all 6 pre-construction yrs interest paid + tile,stone & wood work exp.) from this year in my US Tax Return , ...... is this ok ?
Hi,
1. No, you can not claim depreciation on full value.
You need to obtain valuation report to get the valuation of land & building separately.
2. Right.
3. Yes.
4. Yes.
May I know who does the house property valuation report and how much does it average cost for a flat ? Is there any licence for issuing valuation report or any real estate agent can do it and valid all over india and abroad ? Will the valuer do valuation as per the buying date of house property which is like few years ago or the valuer will do valuation as on current date rates ? Can I use circle rates to get valuation of house if it does not include land pr plot share for multi-story flats ? Do I need to add up all capital nature expenditures to the valuation of flat given by valuer's report to get the full value of property to start depreciation now on this total value ? Once valuation is done , it does not matter what is the actual buying cost of house mentioned in property registry papers , ………….. is it correct ?
Hi,
You should take help of a registered property valuer, rather than arbitrarily deciding the FMV of the property.
“Assumptions of any type for consideration of value shall not be entertained by the income tax department. In case of any enquiry, the department will consider the value stated in the valuation report from a registered valuer,”
Government-approved valuers follow a standard process for the valuation and provide a detailed report.
Fee and charges that a valuer can charge are depend on the value of an asset and other parameters.
As far as I have read about depreciation of residential property what it says is that get the fair value of the property without considering the land part of property as it would appreciate and not depreciate, so I would suggest to get a government approved valuer and ask him to give you the value of property when you gave it on rent because I have read it that depreciation starts from the year when it was first given on rent irrespective of when it was made and there is a fixed duration for which it needs to be depreciated.
Also one point which I would like to put is that the income earned in India will be taxed in India eventhough you are NRI but as per income tax such income is taxed in India so how would you claim depreciation of such a building whose income is taxed in other country.
Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.
Thank you
If the property was purchased before 01.04.2001 then you need valuation report in India otherwise registry papers and proof of expenses, interest certificates are sufficient proof to claim cost of house property. You can aslo get the valuation done for future.
Valuation shall be done by registered valuer. They are licensed. The valuation may range from 5000 onwards. You have to get one valuer from the city in which the property is located.