[joshiuday]

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

[AtlantaTaxExpert]

You have it correct. You would report the capital loss on Schedule D and Form 8949.

[joshiuday]

Hi AtlantaTaxExpert

Thank a lot for answering my question. I have seen your other posts in this forum. I respect your knowledge and willingness to help others.

I was doing some further research on this topic and came across following Q&A in intuit Turbotax forum: https://ttlc.intuit.com/questions/23...y-depreciation

This one is saying that all gains/losses related to foreign currency should be treated as ordinary gains/losses and not as capital gains/losses. Can you please comment on this?

Thanks
Josh

[IntlTax]

The currency loss should be an ordinary loss and should be reported on line 21 of form 1040.