Currency Conversion loss on inherited amount

[Sohel]

I was the personal representative and beneficiary for my mothers US estate which had some foreign financial accounts. It was below the threshold to pay any estate tax. I filed and paid US estate income taxes on form 1041 on the foreign income earned by the estate before I inherited it. I also filed FBAR for the estate. Once I received the funds from inheritance in my foreign account I paid US taxes (1040) on the foreign income and filed FBAR for myself.

The foreign currency depreciated substantially between the time my mother passed and when I actually got the funds into my foreign account. The currency depreciated further before I was able remit it to the US.

I therefore suffered loss from currency conversion. First, the loss from the date she passed to the date I got funds into my account and second, the loss once it was in my account to the time of remittance.

How can I take both these currency conversion losses?

[MaryK4]

Unfortunately, you cannot take losses for currency conversions.

[Sohel]

https://ttlc.intuit.com/community/taxes/discussion/capital-gains-tax-on-inherited-foreign-currency/0...

This response on intuit forum says:

"gains/losses attributable to exchange rate fluctuation is ordinary income/loss not capital gain/loss:"

The situation is very similar to mine.

[SusanY1]

The text highlighted in your quote "gains/losses attributable to exchange rate fluctuation is ordinary income/loss not capital gain/loss" is without full context.  It's referring to the gain/loss of a Section 988 transaction.  Moving funds from your mother's account to yours generally isn't a Section 988 transactions.

There's no allowable deduction for the loss in value between the time that the funds were transferred from your mother's foreign currency to your own foreign currency account (as this is not a realized loss).  There is some debate that you can easily find online about whether or not the transaction becomes a loss when you realize the loss due to the conversion. 

I am of the opinion that converting your own personal funds from foreign currency (or "nonfunctional" in Section 988 terms) into personal funds in USD ("functional currency") is a nondeductible personal loss, because you did not "purchase" foreign currency as an investment.  I've seen arguments that this does give rise to a loss, but I've yet to see a case go before the IRS like this so I don't know what the outcome would be. 

Section 988 is very complex and we are working with only a snippet of your full picture, so there are nuances here that could make this an allowable loss for you. 

If this is a significant loss for you, you might want to talk to someone in your area who specializes in international tax matters.