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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29800
Experience:  Taxes, Immigration, Labor Relations
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On 30 May 2015 I purchased a Certificate of Deposit at a

Customer Question

On 30 May 2015 I purchased a Certificate of Deposit at a bank in Malaysia of MYR 760,000 for 4 months. The exchange rate was 3.8139 MYR / US Dollar which gives me a cost basis of US 199,271.
When I sold the CD the exchange rate was 4.6563 which in US Dollar terms is $163,219 which gives me a capitol loss of $-36,219. Can I list this as a short term capitol loss in Schedule D with the IRS?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Your assessment is correct

that is based on section 988

https://www.law.cornell.edu/uscode/text/26/988

(a) General rule

Notwithstanding any other provision of this chapter—

(1) Treatment as ordinary income or loss

(A) In general

Except as otherwise provided in this section, any foreign currency gain or loss attributable to a section 988 transaction shall be computed separately and treated as ordinary income or loss (as the case may be).

So we need to view currency exchange transaction as

(1) On 30 May 2015 - USD converted to MYR

(2) 4 months later - MYR converted to USD

Then - you will report that gain or loss as ordinary income - report on form 8949 as short term capital loss.

Questions?

Customer: replied 1 year ago.
The money was in Malaysian ringer before and after the transactions. Does this affect using this transaction for a Capitol loss?
Expert:  Lev replied 1 year ago.

If the money were in MYR and never transferred to or from USd - there is no gain r loss on currency transactions.

The gain or loss ONLY recognize when currency is converted.

However in this case - we will have interest income on Certificate of Deposit - which is calculated in USD based on currency conversion rate when interest is credited.