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:
Thank you in advance for any insights you can provide on this.
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Let's address each one of these issues directly.
Just as a reminder, make sure this is reported as other income and not in the investment section of your return. Currency trading results in an ordinary gain or loss and not a capital gain of loss. Just a reminder. Please rEach out if you have further questions.
Let's address each one of these issues directly.
Just as a reminder, make sure this is reported as other income and not in the investment section of your return. Currency trading results in an ordinary gain or loss and not a capital gain of loss. Just a reminder. Please rEach out if you have further questions.
@DaveF1006 thank you so much for your in-depth response. Please allow for two follow-up questions/remark s to make sure that I understand everything correctly.
I am not in the business of currency trading, so it is great to know that my transactions can be considered "personal transaction" and I can take advantage of the associated exemption.
My follow-up question:
As an overall summary of (my understanding of) your answer, this would be the approach that I'd need to take:
Please let me know, this summarizes your answer correctly.
Thanks again for your help. I appreciate it a lot.
My understanding on this provision is that you may claim a loss on any amount of a transaction. The exemption is only for a gain of less than $200 for each transactions if used for personal purposes.
Looking over your summaries, total all your transactions over $200 and combine them with your losses to determine what total to record as other income.
Hello Tax Experts, I have a question similar to this but slightly different. I need to show foreign currency loss in the foreign CD and want to confirm that it should be shown as ordinary loss on tax return. I transferred $25K in 2008 to India (in INR currency) and I invested the money in CD which gave good interest for which I paid taxes in US over the years by converting to USD using that year's exchange rate. In 2023, I converted that whole CD amount to USD . When I calculated the cost basis (by including all interests reinvested at different exchange rates), I can see I have a total of $30K loss. Can I show this as ordinary loss? (At least based on this article http://publications.ruchelaw.com/news/2014-05/Vol.1No.04-03_Tax%20101-FX.pdf , these should be treated as Section 988 transactions). Can you please confirm if my understanding of the article is correct and tell me how I can use TurboTax to show section 988 transactions (and the total ordinary loss)? Thanks for your help!!
This is not correct. In Coordination with section 988(c)(1)(C)(ii). No exchange gain or loss is recognized with respect to the following transactions.
(A) An exchange of units of nonfunctional currency for different units of the same nonfunctional currency;
(B) The deposit of nonfunctional currency in a demand or time deposit or similar instrument (including a certificate of deposit) issued by a bank or other financial institution if such instrument is denominated in such currency. This is referring to conversion losses.
C. Thus gains or losses are not recognized in Section 988 transactions.
Recognition and Gains and Losses of 988 Transactions
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