In the page "Amounts Related to Foreign Financial Assets", what is the difference between Foreign Fin Accounts and Other Foreign Fin Assets

[Jo62]

I bought a foreign CD for 1+ year and there was a fluctuation in currency exchange between the dates of acquisition vs expiration. I've been advised to enter this as a capital loss. Do I enter it in the Financial Account section or the Financial Assets section? (in addition to reporting it as a loss elsewhere)

[ThomasM125]

A foreign financial account would be as asset held by a bank, broker or similar fiduciary. A foreign asset would be something more tangible, such as a stock certificate evidencing an ownership interest in a business. The CD would likely be an account, as it is money held in trust by a bank, and I assume you actually have an account number by which it is identified. 

[pk]

@Jo62 , while agreeing  with the explanation provided by @ThomasM125 , I would like to point out the following:

1.  Financial assets  are generally liquid or semi liquid i.e. they are or can be easily converted  cash, while assets are  generally non-liquid assets --- same definition whether in the US  or foreign

2. A CD foreign or otherwise is not a Capital asset -- it is generally an interest bearing financial asset and its income is treated as  interest earnings. Thus you cannot claim Capital loss --- it is loss in interest earnings in US dollar terms  but in that foreign country you must have designated as local currency  CD.

3. IRS would argue that  this loss  ( due to rising UD$) of interest earning should have been  taken into account while you used local currency -- it is an understood and inherent risk when dealing with foreign currency.

So , IMHO,  you cannot claim Capital loss ( because this is not Capital asset ) and /or foreign exchange based loss ( because you were or should have been aware of the risks of  foreign currency and because your operating currency is US$ ).   You may be able to claim casualty loss but I am not sure of this.

Does this make sense  or am I totally in left field.?   By the way which country are you talking about --- may be there is some reprieve  in the tax treaty ( unlikely though , from the ones  I am aware of  ).

pk

[Jo62]

@pk Thanks for providing this info. I figured out that currency fluctuations on currency exchanges would not be reported as capital losses, but as regular income losses under Other Income in TT.  

I'm unsure at the moment if foreign financial transactions trigger a currency gain/loss. Someone told me that it does but I can't find anything definitive.    This article talks about reporting fluctuations when buying and selling bonds. Then there's this IRS publication which is impossible to interpret. 

I purchased Canadian GICs, which are the equivalent of US CDs and I haven't converted the Canadian dollars back to USD yet (I reinvested). 

[DianeW777]

It depends, you report any earnings on your Canadian GICs as interest income.  When you hold GICs in a non-registered account, the interest earned is fully taxable. Since GIC earnings are considered 'interest', they're taxed at your marginal tax rate, which is the rate at which your income, other than capital gain property, is taxed.

When you have a GIC, you have the choice of holding it in a non-registered account or a registered account. With a non-registered account, the interest income you earn is fully taxable. For example, if you have a GIC for $1,000 at 2 percent interest and earn $20 in interest in the tax year, you must pay taxes on the full $20.

If you hold your GIC inside a tax-sheltered account like your Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA), you are not required to report interest income earned on your tax return. When you cash out your GIC from your TFSA, you do not need to pay any further income tax. However, when you cash out your GIC from your RRSP, the full amount is taxable at your marginal tax rate. Also, when cashing out your GIC, withholding taxes may apply.  See more information at the link below.

• Reporting Income from Guaranteed Investment Certificates

@Jo62 

[Jo62]

In this case it is in a taxable account and the interest is reported as interest. The remaining question is do we need to report the income gains/losses due to currencies fluctuation between the purchase data and the expiration date at the time of expiration? If not, I assume that the gain/loss will  need to be reported when the CAD are converted back to USD. 

[Jo62]

Thanks. Just to clarify this question is asked in the context of a US resident who files taxes with the IRS. For GICs, we receive an NR4 statement to report interest in the US. 

[HopeS]

It depends, holding foreign currency in an investment portfolio can generate taxable gains and losses. Losses are fully deductible from ordinary income, without limits, and gains are taxable at ordinary income rates. 

However, it appears you are holding a foreign CD which would not be the same as holding foreign currency in an investment.

See below for additional information. 

How to report section 988

@Jo62 

[Mayana]

would this be the same for Canadian T-Bill and Money Market Fund accounts? 

[pk]

@Mayana ,  after a quick look at this thread, I would like to clarify ----

There are two different characteristic  that I think is being confused  -----

1.    monies invested for personal purposes ( i.e. personal wealth / asset / property .  In this case

               (a) if you chose to  invest domestically , then all gains are generally taxable  be it as ordinary income ( interest, dividend etc. )  or capital income  ( short term or long term ) but losses are  generally only recognized partially ( applicable generally only to capital assets.   Sometimes you can also use  casualty loss under certain circumstances..

               (b) If you choose to  invest in foreign assets ( ordinary or capital ) you assumed to recognize the  currency risks and therefore whereas gains are taxed, losses may or may not be recognizable, assuming  also that your operating currency is US$ ------ this implies that losses of the earnings  are recognized but the loss of principle  is generally NOT.

In you particular case with Canadian T-bills, loss of principle due currency fluctuation is not recognizable ( you are expected to have known or should have known the risk )  because this your basis/ investment but the gain loss  can generally be offset against other ordinary or capital gain loss.  I don't know if I am being clear  -----

If you need more help on this I would be only too glad to help ,

pk