[madhoa]

I bought a CD in a foreign bank in 2012. The CD matured in 2013, and I renewed it for another year. Since this was denominated in a foreign currency which depreciated against the $$, the CD was worth less when it was renewed than when it was issued.

e.g. if CD was worth $1000 in 2012, paid out $100 in interest (which I paid taxes on), but was worth only $800 because of foreign currency loss when it was renewed in 2013. So I actually have a loss of $300 ($1100 basis - $800)

Now, I understand that I could have claimed a section 988 forex ordinary loss on the CD if I had converted it back into $ in 2013. I did not, so I cannot claim that loss.

But can I claim a capital loss of $300 ? If I had bought some other foreign property in 2012 and sold it in 2013, and sustained a loss in $$ (even if I made money in foreign currency), I know I can claim a capital loss.

Can I do this even for a CD, or is a CD just considered currency and hence no capital loss is allowed ?

[AtlantaTaxExpert]

In the renewal process, did you not cash it out and just buy another CD? If so, you then claim the loss.

[madhoa]

For one CD, I bought it in $$ in 2012 and renewed it (not cash it out) in 2013 at a different rate and for a different term ? For another CD, I bought it with an old savings account in a foreign country, then Icashed it out and put the money in the same foreign account But the original basis in $$ would be hard to get unless I used the basis on the day of CD purchase. In neither case was the money converted back into $$ Why does it make a difference whether its renewed or cashed out ? Isn't a renewal is really a cash out, and a repurchase for a different term at a different rate ? From my readings of section 988 regulations, I gather that if a CD was converted from and to $$s, then a forex loss can be claimed under section 988. However, if it was NOT converted back to $$, then an ordinary loss cannot be claimed. And a CD with a bank is considered cash, so no 988 loss can be claimed. My question is whether a capital gain can be claimed on such a CD transaction. It seems from my reading that the IRS considers a CD to be a cash equivalent, so no capital loss can be claimed on a CD , but I would welcome some guidance

[madhoa]

And for clarity, I should add that my CDs are not Everbank CDs or something like that. They are regular CD (time deposit) in a foreign bank.

[AtlantaTaxExpert]

There are TWO aspects of your transactions:

The interest earned in the CD, which is cashed as interest.

The foreign exchange of USD to whatever the currency the CDs are in.

In my opinion, you can claim the 988 FOREX loss when you finally convert the money back to USD, and not before.

[madhoa]

ATE, thanks very much. I have reported the interest and paid taxes properly and I think I can add the interest in $ to my basis.

I realize I cannot claim a section 988 ordinary loss without converting back to $

But can I claim a capital loss on the CD (this is less 'valuable' than an ordinary loss because of the $3000 limit per year) even if its not converted back ? I could do that for other property, but I haven't found a clear answer on whether its possible to do that for a plain CD.

[AtlantaTaxExpert]

No; in my opinion, you CANNOT claim the loss on the CD renewal itself, because there is NO actual exchange of currency. Only when you convert back to USD can you claim the loss.