How to Claim Foreign Investment Income in a Different Currency

Filing Taxes

When a taxpayer receives income or pays expenses in a foreign currency, he must file the income with the IRS at the end of the tax year. A taxpayer cannot file the income in a foreign currency, so the taxpayer must translate the foreign currency into the US Dollar. After the income is translated, it is reported in the same manner as if the money was never in a foreign currency.

Instructions

1. Determine the taxpayer's functional currency. The functional currency is the U.S. Dollar for everyone except for some qualified businesses.

2. Translate the foreign currency to the functional currency. Taxpayers can use any exchange rate that properly represents their income or loss. The IRS recommends using the Treasury Department, Federal Reserve Bank or the U.S. Department of Agriculture's exchange rates.

3. Report the translated amounts onto Form 1040. Report taxable interest on Line 8a. Report dividends on Line 9. Report capital gain distributions and gains or losses on stocks and bonds on Line 13.

References

• IRS: Foreign Currency and Currency Exchange Rates
• IRS: Publication 550 (2009)
• U.S. Treasury: Treasury Reporting Rates of Exchange