Tax on Capital Gain via Foreign Exchange - Community Forum (2024)

FAQs

Is there capital gains tax on foreign exchange? ›

Foreign currency exchange gains and losses may also fall under the capital gains tax provisions of Part IIIA of the Act, at least in so far as they are realised or suffered by a lender. The definition of an asset, for the purposes of the capital gains tax provisions, is contained in s 160A.

Currency traders in the spot forex market can choose to be taxed under the same tax rules as regular commodities 1256 contracts or under the special rules of IRC Section 988 for currencies.

When Americans buy stocks or bonds from foreign-based companies, any investment income (interest, dividends) and capital gains are subject to U.S. income tax and taxes levied by the company's home country.

Foreign exchange gains and losses are taxable and deductible respectively if the gains and losses are: arising from revenue transactions; realised; arising from a trade.

Gains and losses from foreign currency transactions will generally be taxable (or deductible) in the US or in a foreign country based on the applicable tax law.

If you sell your foreign property, you may be able to make a 1031 exchange (also called a like-kind exchange), in which you swap one investment property for another similar property on a tax-deferred basis. Many investors use this strategy to defer paying capital gains and depreciation recapture taxes.

The long-term capital gains from the sale of foreign stocks are subject to a 20% tax rate, plus a surcharge, a health and education cess, and an indexation benefit on the cost.

Not all countries impose a capital gains tax, and most have different rates of taxation for individuals compared to corporations. Countries that do not impose a capital gains tax include Bahrain, Barbados, Belize, the Cayman Islands, the Isle of Man, Jamaica, New Zealand, Sri Lanka, Singapore, and others.

If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $112,000 or even more if you incurred housing costs in 2022. (Exclusion is adjusted annually for inflation). For your 2023 tax filing, the maximum exclusion is $120,000 of foreign earned income.

You would enter the information on Schedule 1 (Form 1040) Additional Income and Adjustments to Income, Line 8 as an ordinary gain or (loss).

Do I have to pay US tax on property sold overseas? ›

Citizens Owe Taxes on Property Sales at Home and Abroad. Real estate sales are taxed as capital gains if you held the property for more than a year. They are taxed as income if you held it for less than 12 months.

Generally, foreign real estate does not need to be reported if it is held directly and used as a personal residence. But, when real estate is held through certain entities or used for rental income, it may trigger reporting requirements.

The maximum foreign earned income exclusion amount is adjusted annually for inflation. For tax year 2023, the maximum foreign earned income exclusion is the lesser of the foreign income earned or $120,000 per qualifying person. For tax year 2024, the maximum exclusion is $126,500 per person.

In general, US capital gains are not taxable to nonresident aliens. Rather, capital gains are considered sourced at the location of the Taxpayer. This general rule does not apply to individually owned US real estate by a foreigner, non-resident alien. Individually owned real estate is taxed on the sale as capital gain.