Where do I report foreign interest income and losses?

[HPP1]

Hi Deepak,

Did you figure out how to report currency loss on fixed deposit?

[pk]

@HPP1 , while much of the information shown on page 2 of this long thread is quite valid  and probably apropos to your situation, please consider starting a new thread with your  specific situation and what you are trying to achieve--please .

pk

[DaveF1006]

You can report a currency loss transaction as a Section 988 loss. 

• Federal
• Income and Expenses
• Scroll down to Less Common Income and click Show More
• Start next to Miscellaneous Income
• Start next to Other Reportable Income
• For description Type in Section 988 Currency loss and then record the amount of the loss with a minus sign in front of it.

@HPP1 

[HPP1]

Thank you DaveF1006,

Do you know on which amount we can claim currency loss for foreign bank CDs.  For instance, I transferred $100 to invest in a 10 year bank CD when currency rate was ($1 to Rs.10).   I earned interest every year on that CD which I reported to IRA every year.  I have earned total of Rs. 1000 in interest at the end of the 10 year CD.  Now, at the maturity date I have Rs. 2000 (Rs. 1000 principal + Rs. 1000 interest earned) in my foreign account.  When I convert Rs. 2000 to USD ($1=Rs. 20), Do I claim currency loss on the whole amount (Rs. 2000) and report that amount as currency loss?

Thank you,

HPP1

[DaveF1006]

I need to revise my original answer to this post. I did find this interesting reference that may not be favorable to you. 

Actually what it says in this post is:

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.

Thus gains or losses of CD's are not recognized as Section 988 transactions. Sorry for the misinformation i gave you in my previous post.

{Edited 04/05/23} (4;18 PM PST} @HPP1

[MS456]

Hi Dave, I think your earlier answer is correct and an individual should be able to show the currency exchange loss as ordinary loss under section 988 transactions. Please check the section (9) Examples in the same article you provided in your latest reply: https://www.law.cornell.edu/cfr/text/26/1.988-2  

Example 1 and 2 clearly explains that one can take losses when the individual actually convert the money from one currency to other. Examples mentions a personal loan but CD is also like a loan to the bank.  

Also I think the first paragraph of article is saying that one cannot take loss during the transactions such as moving money from one deposit to another in same non-functional currency (all points from A to E specifies almost same type of transfer or maturity of CD etc. ).  A cash basis individuals can adjust the basis as they are showing the interest every year as income but keeping the money invested in foreign currency till it is fully converted to USD.  Once money is converted from non functional currency (is foreign currency) to USD, a person can take the loss under section 988 (according to examples under section 9). 

Can you please review the examples under section 9 again and confirm if my understanding is correct? I need to show my currency loss in TurboTax and I was thinking of showing it as negative number under the 'Other Reportable Income' in the Miscellaneous Income section as you have explained in your older post.

Thanks

MS

[MS456]

I also wanted to give another link on similar subject: http://publications.ruchelaw.com/news/2014-05/Vol.1No.04-03_Tax%20101-FX.pdf

[DaveF1006]

I would need to stick with my original position and not offer an opinion to the contrary. in my post that I wrote previously, there was additional information i did not include such as: The withdrawal of nonfunctional currency from a demand or time deposit or similar instrument issued by a bank or other financial institution if such instrument is denominated in such currency. The CD is a time deposit instrument that would fall under this guideline where you could not take a conversion currency loss.

There is not enough evidence in this article that would sway me to change my position. I cannot advise you to take a loss in this situation. If you decide to take a loss, you have my blessing but make sure you have a solid reference source to support your position and keep it in records in case you are examined by the IRS.

This is a confusing issue and is open to interpretation. I tend to be very conservative thus try to follow the letter of the law. Besides the reason why i changed my opinion in the first place is that our tax compliance dept advised me to and pointed out the restrictions regarding time deposits, specifically CD's. 

@MS456 

[MS456]

Hi,

I have created a full post here on this topic giving lot of details from various different sources. None of the tax accountants I called have any clear idea how to handle this. IRS cannot be illogical to expect that we pay taxes when we receive interest from foreign CD every year but not show losses when we convert money back to USD. I lost almost the full principal amount but paid lot of taxes over the years for the interest I did not convert to USD at that time and when I finally converted the money to USD the principal and interest both had losses. Is there any way to get this confirmed from tax experts in IRS as this will help many people to correctly file their taxes? Really appreciate the help TurboTax team is providing here.

Thanks,

MS

[DaveF1006]

Here is a post that I wrote last year that may clear up some of the muck that has been written on the subject. 

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. 

CD's are considered time deposits like a savings account. You cannot report losses on savings accounts because of fluctuating interest rates or other environmental factors thus CD's are treated in the same manner in regards to currency conversions. It's a nature of the beast that we all must live with unless the tax code changes at some point. 

Investing in foreign CD's is risking thus one must determine a risk/reward analysis before embarking on such a journey.

@MS456