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Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 2855
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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If I open a foreign bank account in say France and transfer

Customer Question

If I open a foreign bank account in say France and transfer my US dollars to the account and convert it to euros and hold it for a period of time, how are the capital gains and losses treated on my US tax return?
Submitted: 5 months ago.
Category: Tax
Expert:  Barbara replied 5 months ago.

Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

The general rule with regard to the U.S. tax treatment of gains or losses from exchanging U.S. currency for non U.S. currency (and back) is that the gain or loss on the currency exchange will now be taxed the same as the underlying transaction. The Taxpayer’s Relief Act of 1997 included a provision [Act Section 1104(a)] that included some changes, which are included in the following explanation.

Where there are currency gains or losses in connection with a trade or business or with the management or administration of investment assets, the gain is treated as an ordinary gain (rather than as a capital gain) and any loss is generally treated as an expense.

Where currency gains or losses are incurred in connection with the purchase of an investment, the gain or loss on the currency change on realization (usually from selling) is a capital gain or loss and is included as part of the total capital gain or loss on the investment.

The following link contains excellent, detailed information you will find helpful:

http://www.maximadvisors.com/2013/12/us-taxation-of-foreign-currency-gains-or-losses/

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Customer: replied 5 months ago.
Could you put your answer into layman's terms? Will there be taxes (besides tax on the interest), on a gain in the currency in a foreign bank account? If there is a loss can those losses be carried forward?
Expert:  Barbara replied 5 months ago.

Based on the information in your original question, it appears opening a foreign bank account and converting US dollars to Euros would be an investment (rather than a business). If that is the case, any gain or loss is a capital gain or loss, and any gain will be taxed and any loss can be carried forward if you are not able to use them on the tax return for that year.

Expert:  Barbara replied 5 months ago.

Just following up with you to see if you have any other questions or concerns. If so, please let me know, and I will be able to assist you further.

Best regards,

Barb