turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Announcements
Attend our Ask the Experts event about Deciphering Your Tax Forms on Feb 19! >> RSVP NOW!
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

giumar
New Member

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

https://www.irs.gov/businesses/corporations/basic-questions-and-answers-on-form-8938#ForeignQ1
At this page, the IRS says: "Foreign stock or securities, if you hold them outside of a financial account, must be reported on Form 8938, provided the value of your specified foreign financial assets is greater than the reporting threshold that applies to you.  If you hold foreign stock or securities inside of a financial account, you do not report the stock or securities on Form 8938."

So, if I do not report them on Form 8938, where do I report them??
x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

10 Replies

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

Form 8938 is the form to use to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the appropriate reporting threshold.  It's not the form you use to report income, (capital gains, dividends, interest), from those assets.

You report the sale of securities and any resulting gain or loss using the "Stocks, Mutual Funds, Bonds, Other" interview.  The interview will put each trade on the appropriate Form 8949 and summary numbers off the Form(s) 8949 will flow to Schedule D with the resulting gain reported on line 13 of your Form 1040.  I assume you will not be getting Form 1099-B reporting those trades to you, so you'd answer "No" to the question asked in this interview as to if you received a Form 1099-B.  That will put the trades on the appropriate Form 8949 as "Box C" or "Box F" trades.

You report interest from foreign securities using the "Interest on Form 1099-INT" interview.  You'll enter the required information "as if" you received an actual 1099-INT.  (I assume you won't be getting 1099-INT's from foreign payers.)  Don't worry about entering the information "as if" you are receiving a 1099-INT even though you're not.  If you look at Schedule B - https://www.irs.gov/pub/irs-pdf/f1040sb.pdf - you'll see that it lists only the Payer's name and the amount.  There's nothing there that says "this interest was reported on a 1099-INT."

In a similar manner, if you get dividends from your foreign holdings you'll use the "Dividends on 1099-DIV" interview to enter those, entering them "as if" you actually got a 1099-DIV.

Tom Young

giumar
New Member

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

Thank you very much for the detailed answer.
I have one more, related but different question. The financial account where the foreign bonds are held has a value above the appropriate reporting threshold, precisely because of the value of the unsold bonds contained in it. However, that account in itself does not produce any interest at all. In other words, the account itself cannot and will never be a source of income.
So, do I have to report that financial account on the Form 8938?

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

I must admit, the concept of a "bond" that doesn't produce interest income is a very alien concept.  Why would you possibly hold such an "asset" if it throws off no income and has no prospect for an increase in value?  I have to think you are either mistaken or are making an incredible personal financial blunder.

Now, there are bonds that don't actually pay "cash" interest because they were issued at a discount - say 50% of face value - but, when they mature they will pay full face value.  These are commonly called "0-coupon" bonds and the accretion of value of the bond as it matures typically IS recognized as interest income to the holder.  In the US this value accretion is reported using a Form 1099-OID, (for Original Issue Discount).

But, getting back to your original question Form 8938 is simply a report of certain foreign financial assets.  If these "bonds" - or whatever they are - meet the definition of a foreign financial asset and your foreign financial assets exceed the threshold, then reporting is required.
giumar
New Member

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

It is not the bond that does not produce interest, but the financial account in which bonds are held. Basically that account works as a "box", just a container for the bonds. But the bonds pay their interest separately on my regular bank account. I guess the most similar concept here in the U.S. may be a brokerage account. It is just an account, for which I pay fees to my bank, in order to be allowed to buy and sell bonds. Regardless of whether I do or do not have any bond, and regardless of how long I keep them, the account itself is not going to produce interests just because I am holding bonds inside it. Does that make sense?

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

Well, I'd say the bonds DO produce interest income but that interest income is immediately ejected from the "box" to show up in your bank account.  Similar to holding dividend paying stocks held inside a brokerage account where the dividends are immediately transferred to an outside checking account.
giumar
New Member

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

Exactly! The interest practically shows up in what you would call a checking account, to which the brokerage account is linked.
So, that being the case, do I have to declare on the form 8938 that I have this brokerage account, which contains a significant amount of money, but which do not produce any money?

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

YES.  Again, the Form is seeking information about "certain foreign financial assets" which these bonds very clearly ARE.
giumar
New Member

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

Thank you. Please forgive me for my slowness but I still don't quite understand. If I report all gains and interests coming from those bonds on Form 8949, why should I report that I simply own a brokerage account? In other words, if I had a checking account which does not produce any interest regardless of the amount of money put in it, should I report the fact that I simply have a certain amount of money in that account?

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

" If I report all gains and interests coming from those bonds on Form 8949"


Gains go on Form 8949, interest goes on Schedule B.



"why should I report that I simply own a brokerage account? In other words, if I had a checking account which does not produce any interest regardless of the amount of money put in it, should I report the fact that I simply have a certain amount of money in that account?"

It's the "foreign" aspect of the assets - "foreign bonds" - and the "foreign" aspect of the financial institution holding then - "foreign bank".   There's no mention as to "income generating" being required, though we have established that these bonds do generate income.



Q1. What are the SPECIFIED FOREIGN FINANCIAL ASSETS that I need to report on Form 8938?

If you are required to file Form 8938, you must report your FINANCIAL ACCOUNTS MAINTAINED BY A FOREIGN FINANCIAL INSTITUTION.  Examples of financial accounts include:

    Savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer.

And, to the extent held for investment and not held in a financial account, you must report stock or securities issued by someone who is not a U.S. person, any other interest in a foreign entity, and any financial instrument or contract held for investment with an issuer or counterpart that is not a U.S. person.  Examples of these assets that must be reported if not held in an account include:

    Stock or securities issued by a foreign corporation;
    A note, bond or debenture issued by a foreign person;
    An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap or similar agreement with a foreign counterpart;
    An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterpart or issuer;
    A partnership interest in a foreign partnership;
    An interest in a foreign retirement plan or deferred compensation plan;
    An interest in a foreign estate;
    Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value.

The examples listed above do not comprise an exclusive list of assets required to be reported
giumar
New Member

Where do I report capital gains and interests from foreign bonds held inside of a financial account located in a foreign bank?

Okay! Now that makes sense. 8938 is not for income generating accounts, but generally speaking for foreign accounts.. Thank you for your patience!
message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question