joshiuday
Apr 13, 2014, 08:50 PM
Hi
With any foreign currency CDs there are two kinds of gains/losses, the interest earned and gain/loss due to fluctuation in currency conversion rate. I have done some research on tax reporting of these gains/losses and I want to confirm that my understanding is correct.
Let's say I am a resident for tax purposes in US and I don't need to file tax return or pay taxes in any other country.
1. Let's say I wire US$1000 to my bank account in Singapore and buy a 2 year CD in the local currency with reinvestment of interest. For simplicity let's assume that I opened the CD on 1st Jan.
2. At the end of first year my deposit has accrued an interest equivalent of US$100. Even though the interest is reinvested in CD I report $100 as interest income on my US tax return and pay tax on it.
3. During the 2nd year I earn another $100 in interest and I report it as such on my US tax return. At the end of 2nd year the CD matures but I let the money sit in my account.
4. Couple of months later I transfer all the money sitting in my Singapore a/c back to US. As per the latest conversion rate I get back only US$1000. The currency fluctuation essentially eroded all my interest income. The cost basis of my investment at that point is US$1200. So at the end of the year when I file my US tax return I can claim $200 as capital loss.
Is this correct?
If yes, how exactly do I claim this capital loss? Where do I enter this amount?
What kind of information I need to provide IRS and what kind of documentation I need to retain?
Thanks
Josh
With any foreign currency CDs there are two kinds of gains/losses, the interest earned and gain/loss due to fluctuation in currency conversion rate. I have done some research on tax reporting of these gains/losses and I want to confirm that my understanding is correct.
Let's say I am a resident for tax purposes in US and I don't need to file tax return or pay taxes in any other country.
1. Let's say I wire US$1000 to my bank account in Singapore and buy a 2 year CD in the local currency with reinvestment of interest. For simplicity let's assume that I opened the CD on 1st Jan.
2. At the end of first year my deposit has accrued an interest equivalent of US$100. Even though the interest is reinvested in CD I report $100 as interest income on my US tax return and pay tax on it.
3. During the 2nd year I earn another $100 in interest and I report it as such on my US tax return. At the end of 2nd year the CD matures but I let the money sit in my account.
4. Couple of months later I transfer all the money sitting in my Singapore a/c back to US. As per the latest conversion rate I get back only US$1000. The currency fluctuation essentially eroded all my interest income. The cost basis of my investment at that point is US$1200. So at the end of the year when I file my US tax return I can claim $200 as capital loss.
Is this correct?
If yes, how exactly do I claim this capital loss? Where do I enter this amount?
What kind of information I need to provide IRS and what kind of documentation I need to retain?
Thanks
Josh