Glossary · Property & Estate
Section 988 Currency Gain
Section 988 can tax the foreign-exchange gain when you repay or refinance a non-dollar mortgage. If the dollar strengthened since you borrowed, repaying a sterling mortgage can create a US-taxable gain as ordinary income — with no UK equivalent.
In more detail
Under Section 988, a foreign-currency mortgage is treated as a dollar liability fixed when taken out. If the dollar strengthens against the pound, you settle that dollar debt for fewer dollars and the IRS taxes the difference as ordinary income — even on a home sale otherwise covered by Section 121, and even on a simple remortgage. A currency loss on a personal-residence mortgage is generally non-deductible, making the rule one-directional against the taxpayer.
Related terms
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