How to report interest income on foreign bank accounts

[DaveF1006]

Here is the screenshot Linaj2020 sent to you.

[PRIYA200892]

Hi, while trying to file my taxes through Turbotax, I did not encounter Form 1040 anywhere ? What am I missing ?

[LinaJ2020]

Are you even required to file?  See info below:

2020 tax filing requirements for most people

• Single filing status: $12,400 if under age 65. 
• Married filing jointly: $24,800 if both spouses under age 65. 
• Married filing separately — $5 for all ages.
• Head of household: $18,650 if under age 65. 
• Qualifying widow(er) with dependent child: $24,800 if under age 65

To view your Form 1040 and other forms, click here: tax forms

[PRIYA200892]

1. I have some interest income earned on my foreign savings accounts/ other investments products. Is there a minimum threshold for this foreign interest income to be reported while filing US Taxes?

2. The interest income on some investment products in India are tax-free in India. Will that interest income be tax-free in US also or not ? 

4. Should I report foreign interest income in the same page as 1099-INT on Turbotax ?

3. Do I need to submit Form 8938 ? What are the criterion that needs 8938 to be filled ?

[geauga]

1.  Any interest income earned in a foreign country must be reported in USA. 
2.  Even if interest income in FCNR and NRE accounts in India are tax free, you must report them and pay taxes in USA.  
3.  Answer is yes.  However, report each foreign bank separately. Write 11-111111 in first box as foreign banks do not give 1099 Int Form . Fill in other boxes like interest in USA banks.  Write all amounts in USD. You can use OANDA or IRS website for exchange rate.  You can take exchange rate as on 31st December 2020 or 1st January 2021. Be consistent in whatever exchange rate you use. If you paid foreign taxes, report in these forms so that you get tax credits in USA. 
4.   Turbo will direct you to fill in form 8938. if it is required for you.  Form is very easy. Carefully read and complete form for each bank account.  Form is in Turbo. It is submitted as a part of tax return. 
5.  If total foreign money (not interest) exceeds certain specified amount, then Turbo will ask you (after filling in form 8938) to fill in another form 114 on different website called FBAR; Turbo does not have form to fill in. 
6.  If you paid foreign taxes, you can get credit by filling in form 1116 on Turbo.  Unfortunately, only a few turbo CPAs are knowledgeable about 1116.  I pay highest premier live version Turbo and after wasting a lot of time with tax advisors, I get some foreign tax expert CPA who helps me. 
Good luck for your taxes. 

[PRIYA200892]

Thank you so much, geauga. Your responses have been very very helpful.

Another question please - 

1. Mutual Fund investments do not earn any ''interest'' per se. So should it be fine to not report it for US taxes BUT report it in FBAR ?

2. While reporting mutual funds investments for FBAR, do we need to put in the valuation as of 12/31/2020 ? Given the fund value keeps changing, I am not sure how to evaluate the amount to be entered. 

Many thanks again!

[ay66026]

Geauga,

I saw your latest response to Priya's questions about reporting foreign interest, that was very good. Can you also summarize how you ended up handling your original question about claiming the loss on your principal due to depreciating rupee. You asked those 2 questions in early Jan-2021 and don't think there was a good answer: 

1.   How do I calculate capital loss of a fixed (term) deposit because of depreciation in a foreign currency? 

2.   Where do I report capital loss in schedule B?

Some CPAs say that loss in the principal is ordinary loss to be reported under "other income" as a loss, not on schedule D, while some CPAs say that loss in the principal due to depreciating rupee is not reportable.

[geauga]

1.  According to my understanding, policy for mutual funds held in a foreign country are same as for mutual funds held in USA.  I have some foreign mutual funds in fidelity and vanguard. Each year, they send tax statements where they show capital gains, interests, dividends on mutual funds in foreign countries. That is okay because these are us investment companies. However, such statements are not be available in many other countries. So there are difficult and genuine problems in such cases. CPA from Turbo should answer. 
2.  You can get the value of investment on last day of the year. Use exchange rate for  that day. Or let CPA suggests a better way. 

[PRIYA200892]

Thanks so much, geauga!

[geauga]

• Yes, you are 100% correct.  Till now, no one in Turbo gave me satisfactory and doable answer.  
  Most convincing answer appears to claim depreciation or losses due to foreign exchange when term deposit matures or better when we transfer proceeds of funds to our bank in USA.  But how and where in Turbo? 
  
  However, where will you claim this loss?  I tried to claim as a credit in form in 1116, but my taxes went up or there was no effect.  It happens because 1116 calculations are based on ratios.  When you show loss or credit without income, you would see negative or no implication on 1116. 
• Possibly, we need to explore other ways.
   I request some senior and experienced Turbo CPA expert in foreign taxes  to guide all of us by answering our questions. 
•  

[MarilynG1]

@geauga Click this link for info How to Enter Foreign Exchange Losses.

[IL2368]

Is interest income earned in the foreign bank account taxable and reportable in California if you are a CA resident? 

[DaveF1006]

Yes, it is reportable in both the federal and state return

[Lorri]

You must remember to properly respond to the questions on whether you owned foreign assets or a bank account with a balance greater than $10,000 USD at any time during the year, and /or if those assets were greater than $100,000.  Entering as a 1099-INT will NOT address these questions and guide you through the proper interview series of questions.  You can find this under Wages and Income > Interest and Dividends > 1099-OID, foreign accounts.  This will generate the appropriate forms.  

See also https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-a...

[etpayzze]

Very helpful.  Thanks a ton.  On the Desktop version click the box that states

My form has info in more that just box 1 (this is uncommon)

really small - located after Box 1