Hi,
I'm trying to determine if I need to report fluctuations of currencies on a Canadian certificate of deposit (GICs) that expired in 2022. I've gotten conflicting info on this.
Context: US resident reporting to IRS. Let's say I bought a certificate with Canadian dollars in 2021 at $1000 CAD which was equivalent to $800 USD. The money was always in Canada, so I didn't exchange any USD to get them. A year later, the certificate expires and the $1000 CAD is now worth $700 USD. I reinvested the $1000 CAD in another 1 y CD, so I never converted the CAD to USD.
Questions:
- Are foreign CDs covered by section 988 (my guess is yes)
- Does section 988 applies to individuals (my guess is yes)
- Do we need to report the currency fluctuation between purchase price and expiration price as gain/loss when the certificate expires (even if reinvested)?
- Or, do we report the gain/loss only when I sell the CAD back to USD?
- Any difference in tax treatment at the state level if living in California?
Footnotes:
If I need to report, I know that it would go into Other income etc. as covered in other posts.
I received a NR4 statement for the interest and I know what to do with that (convert in USD and report as interest, file foreign accounts and FBAR).
due to excellent answers on similar posts
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.
Thus gains or losses are not recognized in Section 988 transactions.
gain loss recognized on maturity.
you may want to revoew reg 1.988-2
https://www.law.cornell.edu/cfr/text/26/1.988-2
(a) (iii) example 1 if interest is added to principal
Thanks @Mike9241
The reference makes it sounds like fluctuations of currencies for Certificates of deposits are not taxable events:
(a) Disposition of nonfunctional currency -
(1) Recognition of exchange gain or loss -
[...]
(iii) Coordination with section 988(c)(1)(C)(ii). No exchange gain or loss is recognized with respect to the following transactions -
[...]
(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;
(C) 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;
Am I reading this wrong or missing something?
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.
Thus gains or losses are not recognized in Section 988 transactions.