Watch: Should You Sell Your US House Before Moving to India? | Costly Mistake To Avoid

2:56 But, wait. They have $200,000 in the house which is locked in. So, the real rate of return is $8,400 divided by $200,000 which is going to be 4.2%. This is not a bad return, but it's not great return especially considering the risk that they had taken. Let's assume they have invested this $200,000 in a diversified liquid fund which earns 7% annually. So, that is going to be $14,000 And that's a huge gap. $8,400 versus $14,000 which is going to be $5,600 per year and that's approximately 5 lakhs rupees every year.

3:54 And honestly, this is still the good part of the story because we haven't covered the real cost yet. Let's talk about the hidden cost. This

4:05 Is where everything changes. Let's talk through the real world cost. Vacancy, 1 month vacancy every year to 2 years and the cost associated with that is $1,500 Next, property management fee where you have to pay 6% as a property management fee for the rent collected and that's going to come around another $1,500 Next is the turnover cost. This includes the cost to turnover the unit as well as leasing the unit. You know, this is where we're talking about cleaning the carpet, painting, fixing stuff, as well as paying the leasing agent for the leasing the unit and approximately it's going to be $3,000 per year.

5:01 And finally, the maintenance cost. This is to fix like a leaking toilet or any other issues that comes up as well as putting some money aside for a large ticket item whether it could be AC, HVAC, roof, any of these. So, let's assume it's going to be $2,500 So, in total, the total cost is going to be $8,500 per year. Now, let's subtract this from the returns we talked earlier. minus $8,500. So, net you're breaking even at the best. So, after all that, you're making $0 for your $200,000 of your money.

5:52 We have seen it with multiple families. When you include conservative cost, the assumption that the rent covers mortgage don't hold up. If you are planning to move or considering moving back to India, this is exactly what we break down on this channel. Real numbers, not assumptions. So, consider subscribing. It will help you avoid costly mistakes. And now comes the part that can completely change the decision. Taxes. Now, a lot of people don't think about

6:27 Taxes. And this is where the biggest financial impact comes in. And this is where a lot of people make the mistake. I will sell the property when the market improves and then they completely miss about the taxes. There are actually three layers of taxes that they need to think about. First, this is a big one. If you sell your primary house in US, you are exempt from capital gains of up to 250k if you are a single and 500k if you are married. But, only if you have lived in that house two out of last 5 years. Which means if Raj and Priya moved to India and wait for more than 3 years, they would lose this benefit completely.

7:21 So, that's potential 200k gains becomes taxable just because of timing. So, what happens if they decide to sell the house after 5 years? So, once Raj and Priya moved to India, their tax status change. Initially, many NRIs qualify for resident but not ordinary resident which is RNOR. During this phase, foreign income is typically not taxed in India. So, their US rental income, US capital gains is not taxed. Sounds good. But, wait. It's only temporary. After few years, they would become tax resident and your global income is taxed in India. That includes the US rental income, US capital gains. So, it's almost like you have an asset in US which is taxed in India.

8:17 So, what actually happens when they sell the property? Let's go back to Raj and Priya. Let's assume they have 200k capital gains from the sale of the house. If they have lost the US primary home capital gain tax exemption, US would tax those capital gains. Approximately 30 to 40k depending on the tax brackets and state. For example, California charges 13.3%. And this is where many people get confused. India will also tax on these capital gains. Indian capital gain is taxed at 4.5% without indexation. You don't have to pay the full tax twice because [snorts] of double taxation avoidance agreement which is DTAA. You can take the foreign tax credit, but this is where things gets tricky.

9:16 You still have to pay the highest taxes between US and India, filing complexity and documentation. And yes, you can avoid double taxation. And there is one more thing people don't expect. If Raj and Priya sell their house after becoming non-residents from a US tax perspective, the buyer is required to withhold 10 to 15% of the home sales price, not the profit, but the home sales price. For example, they sold the house for 500k, the buyer is required to withhold 50 to 75k thousand dollars. This is not a tax, but it's just a simple withholding. Which means they won't get the full sale proceeds. They have to wait for few months before they file their taxes. Imagine this, you sold your house and tens and thousands of

10:17 Dollars are just held back. Let's take a step back and see what it means for Rajan and Priya if they hold the house. First, they might be losing the US primary home capital gain tax exemption. They have to pay US taxes. They also have to pay Indian taxes once they become a tax resident. However, they can claim foreign tax credit and utilize DTAA. They have to deal with FIRPTA taxes and the complexity of filing taxes in both countries. Easily, this would have cost them 20 to 30 lakhs from a financial impact. All this is because of one assumption. Let's hold off selling the house and we will sell it later.

11:10 Now, combine this what we saw earlier.

11:14 Low returns, hidden costs, and suddenly the decision looks completely different. What was once thought as a safe decision can quietly become an expensive. Let's put it this way simply. Sell earlier, no tax or low tax. Sell later, US tax, India tax, handling FIRPTA, and dual tax filing complexity. Let's talk about if they have to sell the house at loss. Let's assume the house value dropped by 10%. House value is 450k and the loss is 50k. Most of the people say, "I will wait." I know selling at loss is very painful, but sometimes the bigger loss is hidden and waiting.

12:05 Let's compare the two scenarios. If they have held the house, they would be losing 5 to 6k in the opportunity annually. And then they have a huge risk from tax. If they sold the house, they have 50k losses and they can invest the 200k, which can earn 14k per year. They would be able to recover the loss in three to four years. They completely recovered their loss. But if they have waited for the market to recover, it could actually cost more than the loss itself. Now, to be fair, renting works if you are planning to return in two to three years or in you are in a high appreciation market or you have a trusted support.

12:56 But if you have a long-term move, it rarely works from a financial perspective. Don't make a 30 lakh decision on one simple assumption. "My rent is going to cover the mortgage." You should be asking, "What is my true return? What are the real hidden costs? What are my tax implications? What are my long-term plans?" And make a decision based on this. The biggest difference I see, people who do well financially after moving back, they don't go by assumptions. They run real numbers. If you want to approach like this, you will find this channel very useful. Subscribe for more practical insights like this, so you can make a decision with clarity.

13:48 Holding something emotionally can cost you financially. I'm curious to know what your plans are, selling or holding. Comment below. Until next time.