Tax Implications of RV
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Thread: Tax Implications of RV

  1. #1

    Lightbulb Tax Implications of RV


    There has been much discussion about the currency exchange being a non-taxable event because no "transaction" occurred, there were no goods/services involved, etc. I would like to point out that the argument sounds good since an exchange doesn't really count as "traditional income." However, there are specific sections of IRS code that spell out that the RV is almost guaranteed to be a taxable event in all cases.

    If your tax professional does not agree with the above (or if you'd like to look it up yourself), please refer them to IRS Publication 525 ( Scroll down to the page listed as "33" in the printed material. Look at the center column about half way down the page. Or search for "Foreign currency transactions".

    Here is the excerpt to read for now and you can verify it in the document yourself later:

    Foreign currency transactions. If you have
    a gain on a personal foreign currency transac-
    tion 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.

    As the paragraph above clearly states, any gain as a result of exchange rates changing (ie RV) will be taxable as capital gains. If you have held the currency long enough (usually 365 days), you would likely fall under long-term gains. If you haven't met the requirements it would be considered short-term gains. This means the gain would be taxable at the same level as ordinary income.

    If you fall under the $200 increase in value clause, you are probably not looking around for information about the RV anyway so you can just ignore this document. If you fall in the short-term category and you have any sizable quantity of dinar you will probably end up being in the 35% tax bracket. Keep in mind that your total taxable income could consist of many other sources and factors but your gain on the RV would be in addition to your other taxable income. (This is where you need to consult your tax professional if you're unsure of how this process works on the 1040)

    If, as an example, you have 1 million dinar and it revalues to $3.00 and you are in the short-term category, you will end up paying progressively up to the maximum tax bracket (around 350,000?) and then the maximum personal tax rate (currently 35%) for everything above that threshold. (See tax tables of the 1040 form

    Do verify this with your tax professional, but unfortunately there's probably not going to be a way to avoid taxes on the gain. To end on a positive note, just remember that a big tax bill means you have a lot of gain that you wouldn't otherwise have had!

  2. #2
    is the tax 35 or 15 i heard 15?

  3. #3
    that would be for you to discuss with a CPA or tax professional. But if you've owned the dinar for longer than 1 year (365 days), then you should fall under long-term gains which should be 15%. For those of us that got in later, it would be short-term and be more like 35%...

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