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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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IF a dual residency taxpayer sells a residence in the UK in

Customer Question

IF a dual residency taxpayer sells a residence in the UK in 2012 with a gain.
And the gain is reported on his 2012 taxes. However the money was never changed into US dollars until 2013, because of banking paper work issues, and there was a loss on exchange.

IS the loss reported on Sch. D as a short term loss? Loss is around $20,000.
Submitted: 11 months ago.
Category: Tax
Expert:  Lev replied 11 months ago.

Lev :

Hi and welcome to our site!
From US tax prospective - US residents are required to report tall worldwide income.
Income is recognized when it is "constructively received".
If income is received in a foreign currency - for income tax purposes the amount should be converted to USD based on the conversion rate on that date regardless if actual conversion took place or not.
Please be aware that if a personal residence is sold - the taxpayer might be eligible to exclude the gain.

Lev :

- up to $250k for a single person - if the property was owned and used as your primary home at least two our of last five years.
For details about excluding the gain from selling your residence - see IRS publication 523 -
Same rules are for property in the US or abroad.
www.irs.gov/pub/irs-pdf/p523.pdf‎

Customer :

what about the 20,000 loss when exchanged

Lev :

That is a separate issue and not directly related to the gain.

he IRS position is found in IRS publication 525 - www.irs.gov/pub/irs-pdf/p525.pdf

See page 30 - middle column - Foreign currency transactions. If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200. If the gain is more than $200, report it as a capital gain.
However if that is you currency for investment or business use, Section 988 (foreign currency transaction) tax rules apply. Section 988 is ordinary gain or loss tax treatment - and yes - this is reported as short term loss.

Lev :

In additional - please be aware - if you will have an account in UK - you might be subject of FBAR reporting.
If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing a Report of Foreign Bank and Financial Accounts (FBAR).

United States persons are required to file an FBAR if:
1.The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2.The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
There is no tax associated with FBAR reporting, but there are penalty for failure to report.

Lev :

Let me know if you need any help.

Expert:  Lev replied 10 months ago.
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Expert:  Lev replied 10 months ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and posting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

That is a separate issue and not directly related to the gain.


he IRS position is found in IRS publication 525 - www.irs.gov/pub/irs-pdf/p525.pdf


See page 30 - middle column - Foreign currency transactions. If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200. If the gain is more than $200, report it as a capital gain.
However if that is you currency for investment or business use, Section 988 (foreign currency transaction) tax rules apply. Section 988 is ordinary gain or loss tax treatment - and yes - this is reported as short term loss.

In additional - please be aware - if you will have an account in UK - you might be subject of FBAR reporting.
If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing a Report of Foreign Bank and Financial Accounts (FBAR).


United States persons are required to file an FBAR if:
1.The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2.The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
There is no tax associated with FBAR reporting, but there are penalty for failure to report.

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