Accounting for currency loss when filing taxes

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Joined: Sat Aug 03, 2019 2:44 pm

Accounting for currency loss when filing taxes

Post by just_learning »

Hello. Long time lurker.
I looked around some on the boards and didn't find anything useful regarding the below...
I am trying to figure out how to account, while filing taxes, for currency losses accrued due to an investment made outside the country.
Here is the scenario-
1. I send $100 to anther country (I have an account there).
2. The $100 converts to 1000 currency units (1USD=10 currency units)
3. I buy foreign bonds worth 1000 units.
4. I receive 100 units in interest over the course of the year- I now have 1100 units.
5. I convert and transfer 550 units back to the US. Meanwhile, the currency has depreciated by 20% (1USD=12 currency units). So, I receive $45.83.

I suffered a loss due to the depreciation.

The 550 units I transferred back- is that considered return (partly) of my original investment? I assume it is.
If the 550 units is considered as a part return of my original capital, they would be worth $55 at the original exchange rate. Instead, I only received $45.83.
How do I account for this loss when I file my taxes? My thought was exactly as above- consider it return of capital and file $9.17 as a loss. (Need to figure out what kind of loss.... long term capital loss?)
I will also be separately declaring interest income (100 units= 100/12= $8.33).


Thanks for your time.
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