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I understand that when I make a profit on foreign currency exchanges in excess of $200, I need to pay capital gains to the IRS.

However, it isn't entirely clear to me when I am considered to have completed such a transaction.

I am a US national and previously resided in Country A, where I kept a local savings account in currency A (from local wages paid to me in this currency). I have since moved to Country B. I want to transfer my savings from Country A in Currency A to Country B in Currency B. Neither currency is USD, and I didn't earn the money in USD. In such a case, will I owe capital gains tax on the difference between when I first acquired Currency A, and the rate its worth now against USD? Or since I am still not converting my savings to USD, do I not owe capital gains on it?

If I were to use some of my savings to purchase something abroad, would I then owe capital gains even though I have not involved USD (since the value of my savings in Currency A has appreciated against USD over the years)?

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A capital gain occurs when you buy something for $10 and sell that thing for $11. In such a scenario you would have a capital gain of $1; on which you would owe taxes.

You're describing a one way exchange.

  • If you are exchanging 100 Euros for $114 (or whatever) that's not a capital gain event.

  • If you exchange 1,000 Danish Krones for 130 Euros for $150 that's still not a capital gain event.

  • Exchanging $100 for 656 Danish Krones is not a gain of 556, that's just an exchange.

For a capital gain you need two transactions.

  • If exchange $150 for 130 Euros, then a few days later exchange the 130 Euros for $200 dollars, that's a capital gain of $50, which is taxable (assuming you're subject to US taxation obviously).

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