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Here is the later notice related to virtual currencies - but same principles are applied to all currencies
This note contains references to corresponding statute and regulations related to currency transactions.
Actually a foreign currency is treated as a separate asset - so when you convert US dollars into a foreign currency - that transaction is treated as if you purchase that asset and establish your basis.
So - when you convert a foreign currency back to USD - that is treated as selling an asset - and based on assumed selling price - you woudl have either capital gain or loss.Again - that applied to investment transactions - not personal transactions. For personal transactions - loss is not deductible; the gain up to $200 is not reported and larger gain is reported as short term capital gain.
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