Unless you were in the business of forex trading, there is no place to report this loss ( or gain ). Sorry.
If my memory serves me right, IRS Reg 867 deals with the effects of currency exchange fluctuation/ drift for US businesses with foreign branches/ units of operation and even there the repatriated amounts are devoid of currency effects ( i.e. losses are realized but not recognized). Sorry -- that is one of the risks of dealing with a currency other than US functional currency when filing US returns
here a link to section 988.
an important part of 988 is subsection e
(e)Application to individuals
The preceding provisions of this section shall not apply to any section 988 transaction entered into by an individual which is a personal transaction.
(2)Exclusion for certain personal transactions If—
(A)nonfunctional currency is disposed of by an individual in any transaction, and
(B)such transaction is a personal transaction,
no gain shall be recognized for purposes of this subtitle by reason of changes in exchange rates after such currency was acquired by such individual and before such disposition. The preceding sentence shall not apply if the gain which would otherwise be recognized on the transaction exceeds $200.
For purposes of this subsection, the term “personal transaction” means any transaction entered into by an individual, except that such term shall not include any transaction to the extent that expenses properly allocable to such transaction meet the requirements of—
(A)section 162 (other than traveling expenses described in subsection (a)(2) thereof), or
(B)section 212 (other than that part of section 212 dealing with expenses incurred in connection with taxes).
sec 162 trade or business expenses
sec 212 expenses for the production of income
however, here's a link to reg 1.988-1
take a look a 1.988-1(a)(6) examples 4, 8 and 9
4 and 8 are clearly stated as 988 transactions, 9 is not
988(e) would suggest that a personal transaction is one that is neither investment nor business related
for example you convert US $'s to pesos for a trip to Mexico. When you return you convert the remaining pesos back into US $ getting more or less than the original cost in US $'s - ie a personal transaction subject to 988(e). Section 988 transaction gains or losses are ordinary income reported on line 8 of Schedule 1. Section 988(a)(1)(A)
Your explanation was informative. Can we conclude that losses occurring from foreign currency devaluation for individuals who sent funds to a foreign bank savings account/CD which gives an annual interest (3-4)% (taxes paid on interest earned all these years) can be applied once the funds are converted back into USD years later?
Funds originally transferred for saving and investment purpose many years ago and not for travel /vacation purpose
Losses on capital (personal) assets are not deductible, but this would appear to be an investment. While it is true section 988 does not apply to "personal transactions", since the funds were invested and earning interest, they are clearly more of an investment than a capital asset, so the loss would seem to be deductible.
The loss would not be a casualty loss, as that would entail it being sudden, unexpected or unusual.
According to section 988, the loss would be treated as an offset to ordinary income, since I assume an election was not made at the time the funds were invested to treat it as capital gain income. As such, you would report it in TurboTax by clicking on the following tabs:
- Income and Expenses
- Add more income
- Less common income
- Miscellaneous Income
- Other Reportable Income
- Enter description (FOREX losses) and the loss as a negative amount
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Thanks so much for the very clear answer. It boils down to whether the transaction is personal or investment. Would you be able to clarify whether the below examples are personal or investment?
withdraw rupees from the foreign acct to purchase rental property (paid in rupees)
withdraw rupees from the foreign acct to purchase residence for himself to live (paid in rupees)
convert rupees into USD and open a interest bearing USD acct
@ThomasM125 while I generally agree with your observations of section 988 applicability, a savings account / CD is a personal asset -- it is not generally given capital treatment, never mind the return rate. The 1098-INT regime does not distinguish between savings interest earned in the USA vs abroad. Therefore currency loss cannot be claimed as capital loss. It may qualify for casualty loss treatment if itemized deduction is used. Also as an individual one cannot use the operating currency rules/benefits either. That is my position .
@ay66026 if you took UKPounds 400,000 , deposited in an account in India ( now it is INR 32,000,000 at INR80 per UKL ), then use INR30,000,000 to buy and furnish a house, then you let the INR 2,000,000 sit in the Indian bank for two years at which time it is now say INR 2,500,000 for arguments sake. You then transfer this INR2,500,000 to your US bank the following is what you have to recognize ( assuming that the UK bank amount had already been taxed by UK and you were a UK resident at the time and not US resident--->
you would have to recognize the interest earned as part of your world income ( USA resident ), converted to US$ at the published exchange rate when the interest was made available to you.
The use of the property a the time ( i.e. during the tax year for US purposes ) determines the taxability i.e. if it your home and not rented out -- it is treated as a second home and hence mortgage interest etc are deductible to you. If it is used temporarily used as rental property ( and for profit ) then the income must be recognized, expenses allowed and depreciation claimed on schedule-E.
Does this generally point you in the right direction or do you need more on this -- in which case you have provide more details on the transactions already completed and your near future plans, please