New US citizen, savings account exchange gain

[DaveinTexas]

Sorry about the title, hard to explain this one. My client, recently became a US citizen, and is still a citizen of Switzerland. She has lived here for the past 3 years and recently got married to a US citizen, got the green card, SS card, the whole works this past year.

About 10 weeks ago, she transferred her savings account in Switzerland to the US and kept the currency in Swiss Francs. Since that time the account has increased in value, US Dollars to Swiss Francs, by $60,000 due to the bottoming out of the dollar.

She is wondering if she has to pay tax on that increase when she finally converts the Francs to Dollars. I say yes, at short term capital gains rates.

What say you? <---stole that line.

TIA.

[JG EA]

I was hoping someone would answer this because I never thought about this. Here is something from Pub 525 page 33.

Foreign currency transactions. If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200. If the gain is more than $200, report it as a capital gain.

Also I liked this explanation, but it is not for the US:

[Snaggletooth]

What about Losses?

Would she be able to report a capital loss if her exchange rate went in the other direction.

Also, isn't the gain (or loss) not recognized until a transaction occurs and a gain(loss) is realized? If this is the case, then neither gain nor loss until the lady pulls her money out of the Swiss bank??

Unrelated to the OP, would this not be a case where she must answer "yes" to the question at bottom of Sch. B?

[jimmcg]

Would she be able to report a capital loss if her exchange rate went in the other direction.

Also, isn't the gain (or loss) not recognized until a transaction occurs and a gain(loss) is realized? If this is the case, then neither gain nor loss until the lady pulls her money out of the Swiss bank??

Unrelated to the OP, would this not be a case where she must answer "yes" to the question at bottom of Sch. B?

Absolutely right Snag! Need a transaction to occur. Until that time you have a savings account denominated in Swiss Francs which can fluctuate from minute to minute in relation to other currency. When the investment in Swiss Francs is changed to another currency then we have a taxable event.
As to "the question at the bottom of Sch B" I would think the answer would be no if the savings account was "transferred to the US." It is not a foreign account, it is a US account which is denominated in Swiss Francs.

[DaveinTexas]

Great responses all

Absolutely right Snag! Need a transaction to occur. Until that time you have a savings account denominated in Swiss Francs which can fluctuate from minute to minute in relation to other currency. When the investment in Swiss Francs is changed to another currency then we have a taxable event.
As to "the question at the bottom of Sch B" I would think the answer would be no if the savings account was "transferred to the US." It is not a foreign account, it is a US account which is denominated in Swiss Francs.

jimmcg is correct, the account is held in a US bank account currently so no FBAR to create.

Thanks JG for the site and the link; great information.