Is deemed income from house property taxed in foreign country?

You would need to look at the tax code in your country of residence. In the case of NRIs in the United States, the US tax code does not tax deemed income. However, you would still have to show the property if it is an investment property in your tax return in the US (even though you do not have any rental income ). If you do not show this investment property, the problem will arise at the time of sale of property. Suppose you sell a property on which you had no rental income for US tax purposes but had deemed income as per India Tax code, then the amount spent on the maintenance, repairs and renovations and depreciation on this property which may be eligible for deduction or addition to your cost basis while calculating capital gains would become difficult to establish. However, if you have not declared the property in your tax returns, the US tax code may challenge the cost basis (purchase + improvements + suspended losses)to claim a tax deduction at the time of sale.

Of course, any investment properties with rental income and related expenses must be reported on Form Schedule E in the US tax returns and rental activities by nature are always treated as ‘passive’ investments with restrictions on deductibility of the net rental losses. Always consult a tax expert as passive activity rules are quite cumbersome.

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