Hi,
Nice to meet you. I’m Xiaowei and lives in Seattle. I’m doing my US tax preparation and my colleague mentioned you to me.
Wondering if you are familiar with the foreign exchange rate gain due to selling a foreign property or refinancing a foreign mortgage, aka the section 988.
Here’s the situation with my wife. She used to live in Canada and she moved to the US recently as a US tax resident. She has a property in Canada as primary residence. We are now thinking about selling that property. She bough it when the US dollar was much weaker than right now. So according to the US tax law section 988, my understanding is that we have to pay tax for any exchange rate gain. And the formula I heard was
Mortgage settlement balance * (exchange rate @closing date – exchange rate @ mortgage renewal date).
My question is that if we renew our mortgage right now, and sell it immediately once renewal is done, looks like the exchange rate gain would be 0? So I can avoid the tax this way? wondering if this is correct understanding. Or, we still have to pay the tax because we renew the current mortgage which means any gain/loss will be realized already.
Thank you so much!
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