I purchased GBP with USD to lend GBP to a relative. When the loan was repaid an FX conversion loss was incurred. How do I file this fx loss on my tax return.

[hamiltmd123]

This is a foreign exchange conversion loss. The loss was incurred by Fox rate variation from the date the loan was advanced to the date when the loan was repaid. What tax forms do I use. 

[DoninGA]

A personal loan is not deductible.  Therefore the GBP to US conversion loss is not deductible.

[hamiltmd123]

So if the fx loss on principal is not  dedictiible what about the interest earned on the loan. Is it not taxed?  What if the interest does cover the fx loss on principal.

[DoninGA]

Personal loan interest received is taxable and reported as income on your tax return.

[Opus 17 · Accepted solution]

 If you are actually charging interest to your relative, and reporting the income as taxable income, then you can subtract your foreign-exchange costs from the interest that you received. In other words, if you lent $1000, and you received $1100 less a $50 exchange fee,  then you would report $50 of interest income.  You can't deduct the exchange fee, because you can't subtract income that you never received. You simply report less income from the loan.