I have a question regarding currency gains resulting from trading stocks in foreign exchanges through a US-based broker (Interactive brokers)
I have $2,000 available in my broker account which I am going to use to trade one stock (stock ABC) in the Paris Exchange (France). Stocks in this exchange are traded in Euros. For the sake of simplicity commissions and other fees are disregarded.
Day 1. The current exchange rate is 1€/1$. I purchase €2,000. My account balance is still $2,000 (€2,000)
Day 2. The euro (€) goes up dramatically. The new exchange rate is 1€/1.5$. My account balance is now worth $3,000 (€2,000).
Day 3. I purchase 2000 shares of ABC stock at 1€ a share. The exchange rate has not changed (1€/1.5$). My account balance is $3,000 (€2,000).
Day 4. The exchange rate has gone further up: (1€/2$). I sell my 2000 shares of ABC stock at 2€ a share. My account balance is now worth $8,000 (€4,000).
Day 5. The exchange rate has gone further up: (1€/3$). I exchange my €4000 for USD. Now my account balance is $12,000
My original investment was $2000. Since now I have $12000, I have made a total profit of $10,000 ($12,000-$2,000). However my capital gains resulting from stock trading are just $5000 ($8,000 - $3,000)
Are the remaining $7,000 my currency gains? I originally started with just €2,000. If so, where (form) am I supposed to report them? What is the specific tax law that talks about this?
I have $2,000 available in my broker account which I am going to use to trade one stock (stock ABC) in the Paris Exchange (France). Stocks in this exchange are traded in Euros. For the sake of simplicity commissions and other fees are disregarded.
Day 1. The current exchange rate is 1€/1$. I purchase €2,000. My account balance is still $2,000 (€2,000)
Day 2. The euro (€) goes up dramatically. The new exchange rate is 1€/1.5$. My account balance is now worth $3,000 (€2,000).
Day 3. I purchase 2000 shares of ABC stock at 1€ a share. The exchange rate has not changed (1€/1.5$). My account balance is $3,000 (€2,000).
Day 4. The exchange rate has gone further up: (1€/2$). I sell my 2000 shares of ABC stock at 2€ a share. My account balance is now worth $8,000 (€4,000).
Day 5. The exchange rate has gone further up: (1€/3$). I exchange my €4000 for USD. Now my account balance is $12,000
My original investment was $2000. Since now I have $12000, I have made a total profit of $10,000 ($12,000-$2,000). However my capital gains resulting from stock trading are just $5000 ($8,000 - $3,000)
Are the remaining $7,000 my currency gains? I originally started with just €2,000. If so, where (form) am I supposed to report them? What is the specific tax law that talks about this?