Taxes on Currency

[Crystalicious]

What is the name of your state (only U.S. law)? AZ

If I purchase a large amount of foreign currency and the value of the currency shows an increase over time; will there be a tax on the appreciation of the currency when I convert it back to US dollars?

Is this currency considered a capital asset?

Will the length of time the currency was held have an impact on the percentage of tax (such as long term or short term)?

Please Advise, thank you.

 

[davew128]

If I purchase a large amount of foreign currency and the value of the currency shows an increase over time; will there be a tax on the appreciation of the currency when I convert it back to US dollars?

Yes.

Is this currency considered a capital asset?

No.

Will the length of time the currency was held have an impact on the percentage of tax (such as long term or short term)?

Not relevant, it's not a capital asset and the income or loss is ordinary.

 

[tranquility]

While I agree with dave128 in what the probable outcome would be (IRC 988) in the way the OP only partially describes. But, such currency appreciation issues can be manipulated in many ways. In certain fact situations, like forex, section 1256 might be appropriate. Or, maybe he wanted to manipulate things and see if REV. RUL. 74-7 might apply.

 

[LdiJ]

What is the name of your state (only U.S. law)? AZ

If I purchase a large amount of foreign currency and the value of the currency shows an increase over time; will there be a tax on the appreciation of the currency when I convert it back to US dollars?

Is this currency considered a capital asset?

Will the length of time the currency was held have an impact on the percentage of tax (such as long term or short term)?

Please Advise, thank you.

I agree with the other responses that you received, however you also need to keep in mind that currency values don't simply appreciate against other currencies. They flucuate, and if you guess the trend wrong, as many do, you can lose your shirt.

 

[Crystalicious]

Thank you for this information but the circumstance that I am writing about does not fall into FOREX or inter-bank trading. This is hard currency and will be exchanged for dollars. Do the rules still apply to make it Interest Income/Interest Expense on the tax return?

 

[dmcc10880]

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.

Currency gains of $200 or less that arise from personal transactions (not for investment or business) are not taxable, but any personal currency losses are not deductible. A personal transaction includes any gain or loss arising from travel even if the travel is business related. Any currency gains in excess of $200 per transaction (per trip or per purchase) are treated as a capital gain. Losses on currency exchanges for business travel also appear to be non-deductible.

The primary source of information on the tax treatment of currency gains or losses is IRC Section 988.

Out of curiosity OP, did you buy Euros, or Aussie Dollars by chance?

 

[tranquility]

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.

Currency gains of $200 or less that arise from personal transactions (not for investment or business) are not taxable, but any personal currency losses are not deductible. A personal transaction includes any gain or loss arising from travel even if the travel is business related. Any currency gains in excess of $200 per transaction (per trip or per purchase) are treated as a capital gain. Losses on currency exchanges for business travel also appear to be non-deductible.

The primary source of information on the tax treatment of currency gains or losses is IRC Section 988.

Cut and paste into google for exact hits.

Please don't post things as your own work when it is not. Traditionally, you put quotes around the portion taken and then you source it. There is also a quote box available on the forum.

 

[davew128]

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.

Currency gains of $200 or less that arise from personal transactions (not for investment or business) are not taxable, but any personal currency losses are not deductible. A personal transaction includes any gain or loss arising from travel even if the travel is business related. Any currency gains in excess of $200 per transaction (per trip or per purchase) are treated as a capital gain. Losses on currency exchanges for business travel also appear to be non-deductible.

In addition to what Tranq said about attribution, none of this copy and paste is relevant to the OP's facts.

 

[dmcc10880]

In addition to what Tranq said about attribution, none of this copy and paste is relevant to the OP's facts.

Ya might want to check out the Bank Secrecy Act.

 

[tranquility]

Maybe you should spell out how that is relevant to what you quoted. Are there other laws having to do with this, yes. The Bank Secrecy Act is one of them.

But, how does the reporting duties of those who remove or transfer a lot of money have to do with your previous cut and paste?

 

[davew128]

Ya might want to check out the Bank Secrecy Act.

You might want to tell us what that has to do with the taxation of gain involving foreign currency.

Psst, BTW, what the taxpayer considers large might not be considered reportable under that act.

 

[Crystalicious]

You might want to tell us what that has to do with the taxation of gain involving foreign currency.

Psst, BTW, what the taxpayer considers large might not be considered reportable under that act.

Yes, I will have to file a FinCEN. While the talk went back and forth about the copy paste issue, I am still waiting on a post that tells me to either report it as interest which makes a bit of sense or a Capital Gain which also makes sense.

Thank you for all the replies.

 

[tranquility]

We don't know your facts so cannot be sure, but three tax professionals believe you owe ordinary income. Other options can be found at:

While I agree with dave128 in what the probable outcome would be (IRC 988) in the way the OP only partially describes. But, such currency appreciation issues can be manipulated in many ways. In certain fact situations, like forex, section 1256 might be appropriate. Or, maybe he wanted to manipulate things and see if REV. RUL. 74-7 might apply.

 

[Crystalicious]

We don't know your facts so cannot be sure, but three tax professionals believe you owe ordinary income. Other options can be found at:

What other facts are you looking for? I purchased enough hard currency that will force a FinCen. I have held it for less than a year. It is over the $200 as described for personal traveling expense. It is not a future contract. Please tell me what other facts you need and I will be more than happen to provide them.

Thank you.

 

[tranquility]

How about educating yourself and looking up the other statute? By asking what facts, you reverse things. Is it something envisioned by section 1256 or something that the revenue ruling applies to? If we go in the other direction, the way you want, I would have to write an article to answer.

At some point, YOU'VE got to understand what the tax situation is. Not what someone told you, but, understand. I think it's ordinary income. What do you think? Why?