How do you report a 988 transaction on a tax return (on which IRS form) and how do you elect it as ordinary income/loss vs. capital gain/loss?

I believe its covered in: 26 U.S. Code § 988 - Treatment of certain foreign currency transactions

The foreign currency gain or loss on a 988 transaction is treated as ordinary income or loss unless an election is made to treat it as a capital gain or loss.


I would probably suggest adding it to your Form 4979 Part II. Otherwise you may consider adding it as additional income on line 21, but I'm not sure how it would work with automatic NIIT calculation. If you calculate it manually - just make sure to add the income to the investment income.

Election to treat as investor should be made before making the purchase, so if you didn't make that election - it is too late to do it now.

  • Should I be reporting gains/losses as per last day of tax year or only report them after converting the amount to USD (in case I still hold the currency)? – Jash Sayani Feb 8 '15 at 21:47
  • @JashSayani you report them when you close the position. – littleadv Feb 8 '15 at 21:52

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