The acquisition of a debt instrument or becoming the obligor under a debt instrument and the disposition of nonfunctional currency are considered by the IRS as Section 988 transactions.
As you have realized the loss on that transaction by converting the foreign currency into USD, that loss is deductible. The loss is ordinary in character and is subject to the netting rule.
Please read this IRS document for more information.
As this loss occurred in 2021, you cannot deduct it on your 2022 tax return, but will have to amend your 2021 tax return.
Please read this TurboTax Help article on amending your 2021 Federal tax return.
@tracadero @mAMYiyVS1e I have edited my answer
[Edited 03/20/2023 | 12:49 PM PST]
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