Taxes on foreign currency? 2 Answers as of November 03, 2010

Generally, he the U.S. tax treatment of gains or losses from exchanging U.S. currency for non U.S. currency (and back) is that the gain or loss on the currency exchange will now be taxed the same as the underlying transaction. The primary source of information on the tax treatment of currency gains or losses is IRC Section 988. An investor may purchase a foreign currency in exchange for U.S. dollars and hold the foreign currency as a capital asset. Any gain or loss would be a capital gain or loss.

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There is no tax on currency exchange.