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Can the discharge of a mortgage on the disposal of a foreign rental property in a foreign currency (non-functional currency for a US tax resident) result in a foreign exchange gain or loss under IRC Section 988 in addition to a capital gain or loss on that property? If so, how is that gain or loss calculated?
Assuming the answer to the above question is positive, do the same rules apply to the annual mortgage payments in respect to foreign owned real estate where those payments are made in foreign currency?
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You're on the right track. Each repayment of a foreign mortgage could trigger foreign currency gain and the character of the gain is ordinary, not capital.
Still an AllStar
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Thank you for the response. So, when paying down a foreign mortgage do you calculate the possible gain monthly with payment or annually by talking an average exchange rate to compare to the previous year?
Thanks
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Always by spot rate. YAVW.
Still an AllStar
