Quote from: steverabincpa on December 09, 2013, 11:57:13 PM

Quote from: The00Dustin on December 09, 2013, 09:48:54 PM

Quote from: steverabincpa on December 09, 2013, 08:04:49 PM

In contrast the currency approach more readily realizes gains at ordinary income rates, but any losses are ordinary and easier to realize and carryforward as NOL.

I really want to know how currency exchange works for a typical individual, can you tell me how one would deal with the following scenario, on a federal income tax level?
1) Juan drives up to Canada
2) Juan withdraws $500 CAD from an ATM using a US/USD-based debit card
3) Juan's checking account balance is reduced by $625 USD
4) Juan's need for the cash vaporizes and he drives back to the US with it
5) Juan goes to his local bank branch and exchanges the $500 CAD for $575 USD
Obviously Juan lost $50 in these transactions. It sounds like you are suggesting that would be a claimable loss.
If that is correct, I would love to know how Juan would claim this loss. If it is incorrect, please refer to my prior posts in this thread and help me understand or find a document that indicates when/how to know one can claim such a loss. If the rules for losses are different than gains, please point me toward information affirming that as well.

The000Dustin, unfortunately the situation described above sounds similar to the example in IRS Rev. Ruling 74-276 where exchange loss of an overseas employee was not deductible because it was not "(1) losses incurred in a trade or business, (2) losses incurred in a transaction entered into for profit, though not connected with a trade or business. and (3) certain casualty and theft losses." (see also IRC165( c ) and Treas Reg 1.165-1(e)( 2 ) )

Business expenses ideally are reimbursed by the employer who deducts them on their business return, or as an unreimbursed employee expense on Sch A. Unincorporated nonemployee businesses deduct exchange loss on Schedule C or E or F of the owner. "Losses incurred in any transaction entered into for profit, though not connected with a trade or business;" I would report as a negative component on 1040 line 21 OTHER INCOME. And of course investment losses go on Sch D. Be careful with travel related exchange losses however, as other travel specific limitations may apply.

I hope these comments were helpful. This post is intended to provide generalized tax and valuation information that is only appropriate in certain situations. It is believed accurate at this time, but these rules, alas, are constantly changing. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding tax penalties that may be imposed on any taxpayer. These contents should not be acted upon without specific professional guidance. Our liability, under any circumstances, is limited to the amount paid for our services. Please contact us if you have questions.

Thank you for the response/explanation. Let's reverse the scenario, though, just in case it makes a difference.
Obviously this is much less likely, but if Juan withdrew $500 CAD and it debited his account $450 USD and then he was able to exchage the $500 CAD for $500 USD upon his return at his local branch, would that $50 gain be reportable as income (and where)? I ask because it's still not "incurred" in a trade or business, and it's still not from a transaction entered into for profit. That having been said, if this wouldn't be reportable, would it be because it wasn't a transaction entered into for profit, or would it be because the dollar amount was below a certain threshold?