I want to clarify what is the correct way to handle taxes in my situation. I'm working with CPA, but we have different views on this topic. I'm hoping to get the proper way to handle it. Google doesn't really help.
The situation (numbers are for simplicity of calculations):
I'm US taxpayer and tax resident for 2018.
I have a savings account (20% APY) in a foreign country and foreign currency (let it be CUR as an example). I didn't withdraw any money from the account and gained interest. Money is still there as of today.
CUR depreciated during 2018 in 2 times.
Exchange rate as of 01/01/2018: 1 USD = 5 CUR
Exchange rate as of 02/31/2018: 1 USD = 10 CUR
01/01/2018: 10000 CUR = $2000 as of 01/01 or $1000 as of 12/31
12/31/2018: 12000 CUR = $2400 as of 01/01 or $1200 as of 12/31
Interest in foreign currency: 2000 CUR = $400 as of 01/01 or $200 as of 12/31
However, because of currency depreciation I'm in fact lost $1000 = $2000 (01/01) + $200 (interest) - $1200 (12/31)
My opinion: I can declare $1000 lost on my tax return, no taxes due.
My CPA thinks that I have to pay taxes from $200 interest gain (as of 12/31 exchange rate).
What is the correct way to handle this?