In my brokerage account I hold stocks denominated in foreign currencies (EUR and DKK). When I receive dividends for those stocks or very occasionally sell a portion of those stocks as well, I receive proceeds in foreign currency, which I then convert to USD via a forex transaction.
So I'm not engaging in active forex trading per se (speculating on future currency exchange rates), rather the fact that I'm acquiring foreign currency is just a side effect of the stocks that I am picking. It is my understanding that such gains (or losses) fall under section 988.
My broker issues a 1099 for the dividends and the stock sales, but the proceeds in USD after the forex sale are usually different. E.g. I might receive a dividend of 100 EUR, which my brokers lists as 110 USD on the 1099, but the forex transaction will net me 112 USD.
Here are my questions:
- I am calculating my section 988 gain (or loss) for dividends by using the 1099-DIV amount (e.g. 100 USD in the example above) as the cost basis for the forex transaction. So in the example above I would calculate a foreign currency gain of USD 2. Is this approach correct?
- I understand that section 988 has an exemption for "personal transactions" with a value below 200 USD. Are the forex sales in the example above considered "personal transactions"?
And if these sales are indeed "personal transactions", would I apply the "200 USD" exemption to each individual transaction (sale) or to the net gain or loss at the end of the tax year?
- Since I generally dispose of the foreign currency gained close to the dividend payment date or stock sale date, there will be some transactions with (generally small) gains and some with (generally small) losses. In my taxes do I have to report gains and losses in separate line items or do I just report a single line item with the net gain or loss?
Thank you in advance for any insights you can provide on this.
