How is fixed deposit interest from india for 5 years taxed in usa? Is it after the maturity or each year end? If account is closed prematurely it accrues a penalty .

[Hari1]

If reported annually and closed prematurely the interest amount might be less than what have already reported in taxes in usa . How to recover the loss in that case.

[Opus 17 · Accepted solution]

Per  US law, the interest on foreign accounts is taxable when it accrues.

If you withdraw early and pay a penalty, that is an adjustment on your US tax return.  See here for how the adjustment is made if you have a 1099-INT from a US bank.  The adjustment is similar with an account that does not issue a 1099-INT, but would require a couple extra steps to enter it. 

https://ttlc.intuit.com/community/retirement/discussion/how-do-i-declare-an-early-withdrawal-penalty...