How to Report Your Foreign Bank Interest on Your US Income Tax Return

412 thoughts on “How to Report Your Foreign Bank Interest on Your US Income Tax Return”

1. Hi Jan;
   I am trying to help my daughter who is a dual U.S./Australian citizen married to an Australian and living in Australia. She has filed a federal return using the 2555 to exclude foreign earned income back in 2009, so that is still in effect until revoked as I read it. She has a very small amount on interest in bank interest, less than $400; and, with her income of less than $20,000 excluded (the limit for 2013 being $97,600), I do not see that she is required to file a federal return. Is that your understanding, or does she need to continually file to document that she is excluding her earned income? I have read that some recommend it, just to run the clock on possible audits, but that seems a bit much for such little income don’t you think?

   Separately, I have read somewhere that even with the earned income excluded up to $97,600, there is a passive income (interest) limit that requires filing of $15,000. Is that your understanding and can you direct me to that information, or do I have that wrong? Or could that be confusing the $1,500 that is asked about on the Schedule B? And on that subject, how does she report interest earned on an account if she has a joint account with her husband (who is not subject to U.S. taxes and does not want to be in our system); does she report it at equal shares or does she report it all?

   Finally, it is my understanding she has a choice to file Married, Separately, or Joint. And that if she files Separately, she can still claim her husband as an exemption since he has no gross income in the U.S. for tax purposes, is not filing a return, and is not the dependent of another tax payer (Per IRS Pub 501). My understanding is that, without a SSN or ITIN, electronic filing will not allow him to be entered in the form, but that you can still claim him on a paper return by entering NRA, as indicated in Pub 501. Is that true?

   I have read many of the questions you get, and am amazed at how patient you are! Not sure how you do it, but it is clearly very much appreciated.
   Thank you for your help!
   Mark

2. Hi,

   My mom is a U.S.Citizen but she does not have to file a tax return as she has no income. I am a U.S.resident filing tax return jointly with my spouse.
   I have had a bank account jointly owned with my mom as the principal owner since 2011 with a balance more than $100,000. I am only a joint owner so that I have authority in case of her demise.

   First question is about FBAR reporting:
   I will have to report this financial joint account on both our FBARs in the joint section with her as a principal owner, correct?

   And many questions about Tax returns:
   My mom has a power of attorney for ME, so she can make investments in my name in India. Using the funds in the jointly held bank account, she has been making fixed deposit investments in Indian corporations in both her AND my name. These fixed deposits are opened and closed/redeemed every year with some interest income (more than $10) posted into the jointly held bank account.
   My questions are:
   1. For form 8938, Do the fixed deposits in corporations made from the joint bank account need to be reported as “other financial assets”? Or can i skip reporting those? The reason I ask is because there is no official “account number/designation” I can use to report these investments.
   2. Am I correct that any interest income incurred by my mom does not have to be reported since she is not required to file a tax return?
   3. Since some of the investments were in my name, but the amounts were deposited to the jointly owned bank account with her as the principal owner, do I have to report this interest income on my 1040? If I do, would that be reported in Schedule B?

   Regards
   Shefali

3. Hi Jan,

   Do I have to report accrued interest each year for NRE FDs that mature in 3 years?

   NRE FD is equivalent of Certificate of Deposit made in Indian bank by non resident Indian. Interest earned on these is Tax free in India. So Indian banks don’t issue equivalent of 1099 INT. NRE FD matures after 3 years and you can not withdraw interest until either it matures or I break it prematurely and pay the penalty.

   I am confused whether we can use ‘cash method’ or do we have to use ‘accrual method’ for reporting interest on NRE FD.

   Option 1: Wait until FD matures and report whole interest in the year that FD matured.

   Option 2: Compute how much interest has been accrued so far on the FD each year and report that amount each year.

   After reading Publication 550

   http://www.irs.gov/publications/p550/ch01.html#en_US_2013_publink10009982

   My interpretation is if CD has duration of > 1 year then it is treated like OID and for OID you have to report interest each year using accrual method (option 2). Even if that interest has not been deposited anywhere and I can’t access it. I have to report and pay tax on annual accrual even if I withdraw CD early I will incur penalty.

   Is my interpretation correct?

   Regards,
   Rahul

4. Hi Jan, first of all, thanks so much for all the valuable advise and time you spend in answering so many queries on myriad issues related to foreign income and taxes.

   I have a foreign bank account overseas that credited interest twice to the account and deducted foreign tax at source prior to crediting the interest. I know I have to declare the interest amounts on Schedule B but I will be filing Form 1116 for foreign tax credit as well. My question is – since the interest was credited on two separate occasions on the same account i.e. on two different dates, do I need to file two 1116’s – one each for the foreign taxes paid on different dates ? I ask because the 1116 has a column for “date tax paid”.

   And extending this query further, if foreign interest is paid and taxes deducted every quarter on the one account, does that mean 4 separate 1116’s have to be filed for each quarter that you are reporting the income and taking tax credit for ?

   Thanks again.

5. Hi Murly,
   As I understand it, you cannot claim a loss on the currency conversion. But if anybody can show me that I’m wrong, I’m open to their thoughts.

6. Hey Rahul,
   I’m going to punt that one back to your CPA.

7. Thanks, Myank.

8. Hi Ganesh,
   if you paid the tax on the 15th, you can use that date.

9. Hey Vijay,
   You can use the exchange rate from the date you earned the interest if that’s a better option for you.

10. Hi Vin,
    A like kind exchange has some very specific rules so you might not have met them. (It’s not limited to houses though.)

    Also, the tax free govt bonds in India are taxable in the US.

    But, I am told by my CPA friend in India that tax free municipal bonds in the US are not taxable in India if you’re filing the other way.

11. Hello Jan
    I invested some funds in an Indian Bank account and suffered a net loss when I reconverted back to dollars. The interest income earned will be taxable here and is reported, but Is there any way I can report this currency loss ?

12. Vin

    Tax Free Govt bonds in India would indeed be taxable in the US.

13. Hi Jan,

    First of all thanks for your efforts in putting comments in this thread. They are very helpful.

    (*) I sent $9,554.74 to India in Jan 2012 with exchange rate of Rs 52.33 per USD for principal amount of Rs 500,000.
    (*) Invested in Fixed Deposit (CD) for period of 3 years at annual interest rate of 9.25%
    (*) I won’t get any interest or principal until Jan 2015.
    (*) My CPA suggested you can either report whole interest at the end or report ‘accrued interest’ each year even though you can’t really withdraw it without breaking Fixed Deposit.
    (*) I paid Tax in US for accrued interest of Rs 46895.29 = USD 838.75
    (*) If I use same method of reporting tax on accrued interest I will again pay tax on interest of Rs 52,361 = USD 859.28 for tax year 2013.
    (*) I am planning to break the break the FD in 2014 and repatriate the money.
    (*) Now if I break the FD today, I will get Rs 610,832.50 . (considering Principal + Interest accrued so far – early withdrawal penalty). Today’s exchange rate is roughly Rs 61 per USD. So I will get roughly USD 10013

    Now

    1. Next year for tax year 2014, probably I need to report interest accrued from Jan 1 2014 till today (Mar 2014). Am I correct?
    2. Next year for tax year 2014, can I report loss due to currency exchange rate changes as negative amount on line 21 in 2014 as ordinary income? I read on some question / answers on TurboTax and some other website that such loss can be considered section 988 transaction.
    3. If answer to question 2 yes, i.e. I can report loss as ordinary income (and not capital loss on schedule D which has upper limit of USD 3000). Can I use “Cost basis” = “principal sum transferred in 2012” + USD interest amount on which I paid taxes so far? In other words

    Can I say that my loss in this case is ($9,554.74 + $838.75 + $859.28 + $214) – $10013 = $1453.77

    Here $9,554.74 was the principal amount I sent form US to India, $838.75 was the interest amount on which I paid in tax year 2012, and $859.28 interest in 2013 and $214 interest in 2014 and $10013 would the final amount I received.

    Gist of my question is can I include interest amounts on which I already paid taxes during the term of a CD in calculation of Cost Basis when I calculate loss / gain due to currency exchange rate changes at the end of the term?

    Regards,
    Rahul

14. Hi! Jan,
    Would the tax free govt. bonds in india be taxable in US?
    Thanks for you help as always.
    -Vin

15. Hi Jan,

    If one was out of the country from, say, Aug 31, 2012 to July 31, 2013, then
    is it correct that one meets the “Presence Abroad” test w.r.t filing of form 8938
    for 2013 US tax return?

    Excerpts from form 8938: Presence abroad. “You satisfy the presence abroad test if you are one of the following.
    * A U.S. citizen who has been a bona fide resident of a foreign country or
    countries for an uninterrupted period that includes an entire tax year.
    * A U.S. citizen or resident who is present in a foreign country or
    countries at least 330 full days during any period of 12 consecutive months
    that ends in the tax year being reported.”

    thank you, in much appreciation.

16. Hi Jan, many thanks for your reply @line 182.
    A couple of follow-up questions if I may:
    1) If i have foreign interest from 3 foreign banks and some foreign capital gains,
    is it correct that it all goes into one single 1116 since they are all “passive income”? In that case, I should simply put the total income from bank interest and capital gains in part 1 line 1a and total taxes paid in part II line 8. Is that correct?

    2)Suppose i sold foreign land on say 1st September 2012, I have already reported that income in my US 2012 tax return, but the foreign capital gains
    taxes were paid on, say, March 15, 2013. Suppose also that in 2013, the only foreign income i have is from bank interest. Then in my 2013 US tax return form 1116, I report the total passive income (foreign bank interest) from 01/01/13 to
    12/31/13, and total foreign taxes paid in 2013 (which would be the taxes paid
    on the foreign bank interest earned from 04/01/12 to 03/31/2013 plus the
    foreign capital gains tax on the sale of foreign land). Is this correct?

    thanks you, in much appreciation,
    -Ganesh

17. Jan, thanks for your reply @line 184.
    One follow-up question on your reply: Suppose I paid most of my foreign tax due
    on March 15th, filed my foreign tax return on July 15th, do people typically use the
    exchange rate at the end of the year or exchange rate on Match 15th or that on July 15th to determine the amount of foreign tax paid in USD for form 1116? As you said,
    should i just be consistent and simply use the year end rate?
    best regards
    -Ganesh

18. Hi Ganesh,
    at line 177

    Okay, it is confusing isn’t it? Generally, I use the US Treasury exchange rates posted for December 31 of the year when I’m preparing a tax return. Those are usually acceptable to the IRS.

    Technically, you report the foreign income at the rate it was earned at on the date it was earned. For most people, you can’t go through and compute the daily earned interest–so I use the year end date.

    My best advice to give you is “do the best you can with the information you’ve got to work with”.

    My second piece of advice is “be consistent”.

    You can’t cherry pick your exchange rates. For example: say one bank paid interest on March 31, June 30, September 30, and December 31.

    Another bank only paid interest on November 14.

    And a third bank paid on March 5.

    You could use the December 31 exchange rate for all of them. Or you could use the individual exchange rates for all of them. But you wouldn’t use the March 5 exchange rate for the one and the December 31 for the others. You want to be consistent in your reporting.

19. Hi Ganesh,
    Foreign taxes on capital gains and be used to offset US tax on that foreign capital gain.
    Your question about “paid method of accounting”–you chose which method of account to use. Meaning. if you use PAID – then it’s the taxes actually paid, or accrued – meaning that you owe it but haven’t necessarily paid the bill yet.

    Generally, individuals use the cash method of accounting when doing their individual income taxes, so you would only report taxes that have actually been paid.

    That said, let’s say the you had income tax withholding and they took out more tax than you actually owed. When you filed the tax return you had a refund. Don’t report that you paid the excess, because you’re getting it back, only report the tax liability. (Even though you overpaid the tax.)

    Foreign capital gains and bank interest are both considered to be “passive income” so they could go on the same 1116 form.

    Even though your income my be tax exempt in India, it’s not tax exempt in the US, so just report the whole thing.

20. Hi Jan, I have the same question that Ganesh asked. Do I need to use the exchange rate on Dec 31st or Exchange rate of the month when it was credited to my acct?

    http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates

    Based on the above IRS page its mentioned we need to use the yearly average rate to convert currencies.

    For FBAR conversions do I need to use average rate on dec31st or exchange rate at the max balance month?

    Thanks in advance

21. Hi! Jan,
    I am back. Earlier I had asked you a question on Jan 4th., on sale of property my father had bought in my brother and my name in India long before I became US citizen. We recently sold the property and I am interested in finding out the tax implication to me. After selling the property, I used my share of money to buy couple of other properties, one of them a residential property for renting and other one is a piece of lans as a gift to my wife.

    In terms of tax implications, You had mentioned that this case may be similar to “like kind exchange” scenario. My question is, “like kind exchange”, wouldn’t that be applicable only to a residential property where one is living?

    Thanks for your help.

    Regards/Vin

22. Hi Ashok,
    I would report that the maximum amount in account A was $20,000 and the maximum amount in account B was $5,000. That doesn’t mean that you have $25,000, it just means that the maximum amounts in either of those accounts at any given time as $20,000 and $5,000, that’s all.

23. Hi Jan,
    Can you please clarify the following?
    I have two bank accounts in India let say A and B.
    Let say at start I had 20,000$ in account A and 0 in B. I moved 5000$ to account B.
    To file FBAR, what amount should I specify?

    If I take maximum from each account, it would amount to 25,000$ which is incorrect.

    Should I just mention account A as15,000$ and B as 5,000$?

24. Hi Jan,

    In the original article you say that foreign interest must be reported in US dollars by using the currency exchange rate on Dec 31 of that year. However, in your response to Mike on 11/30/13, you say: “But you report your interest exchange rate as being the date the interest was earned.” Could you please advise on whether the exchange rate at the end of the year is to be used or the exchange rate on the day the interest was received?

    Secondly, are there situations where average currency exchange rates of the year are to be used? For example,iIn the case of foreign CDs though, interest accrues frequently through the year, so should the average exchange rate of the year be used or the exchange rate on Dec 31 of that year?

    Further, in case of foreign life insurance contracts, premiums are paid multiple times a year over many years. To compute the total premiums paid in USD, should one use the average exchange rate or the year-end exchange rates?

    Confusion stems from no clear guideline issued by IRS in this regard or so it seems.
    Kindly advise.

    thanks you, in much appreciation.

25. Hi Jan,
    thanks again, you have been so helpful!
    One last set of questions/clarifications if I May:

    1)You mentioned that foreign capital gains tax paid in India could be used
    to offset the US tax owed on foreign bank interest. Can foreign capital gains
    tax on foreign land sale be used to offset US taxes on passive foreign income
    (bank interest) or only future foreign capital gains? Likewise can foreign tax on
    bank interest be used to offset US taxes on foreign capital gains?

    2)Is it correct that in the “paid method of accounting” in FTC 1116, I just show
    all the foreign taxes incurred in 2013?

    3)Does foreign capital gains (property sale) and bank interest each necessitate
    a separate FTC 1116 ?

    4)With regard to filing FTC 1116, say my foreign (India) taxable income for 2013
    is $5K (capital gains) and $6K (bank interest), total = $10K. The first $3K is
    tax exempt in India so that net taxes paid is $8K. When filing FTC 1116, should
    i adjust the $3K India tax exemption against the taxes paid on bank interest or
    capital gains or evenly across both? That is, when filing 1116, should i say my
    capital gains foreign tax is $5K and bank interest foreign tax is $6K – $3K exemption = $3K?

    thanks in advance,
    -Ganesh

26. Hi Prem,
    I apologize for missing your new question. You will report the interest that is reported for the period April 1, 2012 – March 31, 2013 on the US tax return that you are preparing now. Does that make sense?

27. Hi Ganesh,
    yes you understood correctly. Still file the form 1116 reporting the $5000 taxes paid in 2013. You can use that tax paid to offset the tax that you would pay in the US on the foreign bank interest.

    Or, say for example, that you sell some land again in the future. That tax credit carryforward could be used then.

    You asked how to work out the timing of the tax and the gains. That’s a tough one, because generally, you use the tax return for the timing of the tax. India’s tax years and the US tax years don’t match up as you well know.

    With bank accounts, you get statements reporting your interest and India seems to take their tax right as you earn the interest so the timing works quite well and you don’t get that split year issue. But with your land deal, I honestly don’t know a good answer for you.

    Would anybody out there with experience with this like to comment? We could use some help. Thanks.

28. Hi Jan,
    Many thanks for your quick response!
    Yes, your understanding of my situation is correct.
    However i am not clear about your last point. You
    mention “You may want to file the 1116 for the tax credit anyway because you may carry that forward until you do have an opportunity to use it in the future.”

    Could you please expand on this? Do you mean that I file 1116 showing $5K as foreign taxes paid in 2013 and that gets carried over to future years? Suppose
    I have foreign bank interest in 2013 for $3K, does it get adjusted against the
    $5K India taxes paid in 2013 with $2K foreign tax credit carried forward?

    Also, is there a better way for handling this kind of situation in the future
    if property sale proceeds and foreign taxes paid on it happen in different
    US financial years?

    thanks in advance,
    -GaneshK

29. Hi Ganesh,
    Let me make sure that I understand correctly.

    1. You sold land in India and you had $25,000 in capital gains in 2012.

    2. On your US tax return, you claimed the $25,000 capital gains, but they were offset by the $30,000 capital loss carry forward you had.

    3. Therefore, you paid $0 in US taxes on that land that you sold.

    Am I understanding that correctly?

    If that is the case, even though you paid tax in India on that sale, you will not have any US income tax that will need to be offset.

    You may want to file the 1116 for the tax credit anyway because you may carry that forward until you do have an opportunity to use it in the future.

30. Hi Jan,

    This is very helpful forum.
    My situation is:
    I sold a piece of foreign land in India in May 2012 for $25K, paid
    capital gains tax in India for $5K in March 2013. On my US taxes,
    I have a capital loss carryover from the past of $30K. When I filed
    my US tax return for 2012, I had to report the gain on the sale of the
    aforesaid foreign land but could not file FTC 1116 since the India
    capital gains for the sale of land were not paid in 2012, but rather
    in 2013. My tax software adjusted the $25K capital gains against
    the capital loss carryover. Thus I ended up paying taxes for sale
    of land in India as well as losing my capital loss carryover from
    prior years in My US taxes. Now for my 2013 US taxes, I plan to
    use the “paid method” of accounting in FTC 1116. My questions are:
    1)Will I be able to claim the $5K capital gains taxes paid to India in
    my US 2013 tax return?
    2)Is capital gains due to sale of foreign property passive income in
    FTC 1116?
    3)Would I have to file separate FTC 1116’s for foreign bank interest
    and sale of foreign land respectively?

    thanks in advance,
    -Ganesh

31. Hi Aashish,
    I believe that it’s best to report the interest as it is earned, even if it is not recieved. But you made me think when you said, (and perhaps I misunderstood) that you would have to pay tax on the value of your regular income here if you reported your interest. That didn’t make sense.

    If your income here is not taxable–for example because of a foreign tax treaty–then you must be filing a “non-resident” return. If you are filing as a non-resident, then your Indian interest would not be taxable at all–because your foreign income would not be taxable in the US.

    If you are filing as a US resident, then the US taxes your world wide income anyway so you’d be reporting your income here.

    Bottom line: file a 1040NR–do not report your foreign interest. File regular 1040–report the foreign interest.

32. Hi Rajeesh,
    Yes, you can claim your capital losses on your tax return.

33. Thank you Amit for your kind words.

34. I have Fixed deposit in an Indian bank, with a term of 5 years. It was started in Dec 2012. The bank reports the amount of interest earned on the account, however, the money is not available for me till end of 5 year term. In this scenario, do I have to report the interest earned, as an income and pay tax on it, even though I don’t have it available for me. Or I can just report the total value of the depost (at end of 2013) as FBAR and once the FD matures , report the interest earned, at end of 5 years. this wouls be helpful as I will then have the money available and I can just use part of it to pay the tax incurred on it. If I report it now, I will have to pay tax on the value from my regular income here.

35. Came across this forum while researching questions on FBAR and questions on tax on FD interest, earned in India. Just want to say, your forum and your prompt replies are extremely helpful, in navigating through the complexities of foreign account taxation. Thank you, much appreciated!

36. Hello Jan,

    I am filing my tax return as resident alien this year. I sold some shares in India on 30th Dec 2013, which I was holding for more than an year. But eventually I had a loss of $430 by selling them.
    Can I show this as Capital loss, and reduce my taxable income?

    Thanks in Advance,
    Rajesh

37. Jan,

    I was about to type my query when I noticed that you had diligently answered most of my questions in previous posts to other individuals. Just wanted to leave a note to say that your comments are super helpful, and there are two things I’d like to commend you on:
    1. Your patient, thoughtful and honest responses to literally every comment
    2. The simple language that you use to explain

    I do plan to reach out to you later this year, after tax season to see if you can work on my 2014 returns and more.

    Regards
    Amit

38. Hi Manu,
    The $100 interest income you received from the US bank is taxable on your 1040NR. Because you are a non-resident alien, your Indian income is not taxable in the US.

39. Hi Mano,
    Here’s a link to information on the IRS Offshore Voluntary Disclosure Program: http://www.irs.gov/uac/How-to-Make-an-Offshore-Voluntary-Disclosure

    You might not need to be involved as your foreign account may not have crossed that $10,000USD threshold until this year. That’s the line for filing the FBAR.

    Remember, the whole time that you were a “non-resident” fling the NR forms, you were not required to record your foreign interest. The only years that you would report your foreign bank interest would be once you became a resident for tax purposes.

    I do know of someone who did the offshore voluntary compliance program successfully by himself. So yes, you can do it.

    But first I’d contact them to see if you should be in the program. You’ll want to amend your tax returns and include the interest, no matter what though.

40. Hi Manny,
    Even though you did not withdraw the interest in November of 2013 since it was reported, you should report it on your 2013 tax return.

41. Hi,

    I am doing my tax returns with Non resident alien status (1040NR or 1040NREZ).

    When I open a checking account with a US bank, I received a $100 reward. For that I have got a 1099 -INT form and the $100 is mentioned as reward/gift.

    Is this taxable income ?

    From below link
    http://www.irs.gov/Individuals/International-Taxpayers/Federal-Income-Tax-Withholding-and-Reporting-on-Other-Kinds-of-U.S.-Source-Income-Paid-to-Nonresident-Aliens

    I see that “if the interest income is paid by a U.S. bank, a U.S. savings & loan company, a U.S. credit union, or a U.S. insurance company to a nonresident alien, it is nontaxable and nonreportable (no 1099 or 1042-S reporting) unless the interest income is effectively connected with a U.S. trade or business.”

    So is this $100 taxable ?

    (Since I am filing as non resident, I assume that any interest earned in my home country India is not taxable)
    Thanks in advance,
    Manu

42. Hi,

    Very helpful forum. I am a resident since last 3 years and was a Alien Resident for 6 years before that. this is the first time i have heard of FBAR and never disclosed interest from my accounts in India the interest have probably been around 100 dollars every year or less (i never looked at it as a income account just a acct for family maintenance back home and to move money to pay off a loan).

    1. What steps do i take to disclose the interest income and Foreign Accounts for this year (total value slightly crossed 10,000 $ and interest was at 150$).

    2. how do i file interest for past years and FBAR for past years?

    3. If doing by myself what different forms will i have to fill?

    4. Do i have to do a Offshore Voluntary disclosure? if so whats the procedure.

    5. if the foreign bank didn’t send a 1099 INT how do i enter that info in Turbo Tax.

    6. Do i need to get a tax professional for this or can i do it myself.

    Thank you for all the help.

43. If I put money in a Fixed Deposit (CD) in a foreign country in May 2013 for a 12 months period, when are the US taxes due? Are they due in the 2014 tax return because the CD matures in May 2014? The bank paid interest on semi-annual basis in Nov 2013 but that interest was not withdrawn– it was added to the principal amount for compound interesting.

44. Hi Jan,

    Thanks for you kind reply. However the following statement is confusing me

    “Interest received in March of 2014 will be reported on your 2014 tax return, not this one. Of course, you would report the interest from March of 2013 on this return.”

    Let me ask in other way :

    The interest for the period Apr 01 2012 to March 31,2013 was paid on March 31,2013.
    The interest for the period Apr 01 2013 to March 31,2014 will be paid on March 31,2014.

    Which interset should I have to show for now?

45. Thanks Srinivas,
    That’s a great tip!

46. Hi Prem,

    Technically, the IRS expects you to report all dividends although most reporting agencies don’t bother to submit forms unless you have at least $10 of income. Since you have foreign bank accounts, I’d be extra careful to make sure you report foreign income–since the IRS is being so vigilant about it.

    You’ll want to file a federal 1040 form plus a California state tax return. Your federal form will have a schedule B–since you do have a foreign bank account (you’ll want to check yes to owning the account even if you’re not required to file an FBAR.) If you have more than $10,000USD in foreign assets, you’ll also need to file an FBAR.

    Interest received in March of 2014 will be reported on your 2014 tax return, not this one. Of course, you would report the interest from March of 2013 on this return.

    Since you already paid tax on that interest to India, you would want to file a form 1116–that shows you received income and paid tax. You’ll get a credit for the tax you paid to India although it’s not always 100% of the tax you paid. It’s based upon a formula not an exact dollar for dollar match–so if the numbers don’t add up, that’s going to be why. If you don’t get to use all of the tax you paid, you can carry it forward to future years.

47. @Jan Roberg

    Thanks for looking in to my request, appreciate your time.
    1. Now I am able to see Schedule-B in TaxACT, I found Foreign Account information item on a investment income and filled it. then it generated Schedule B.

    2. Regarding your fair warning to use foreign tax credit carryover in future, I found a way (You can share it with your client also if it applies)
    In my case, I have two accounts in India NRE (Non taxable in India, No Tax will be deducted on this account) and NRO (Tax will be deducted at source)
    I have $4 interest on NRE (Not taxed) and $28 interest on NRO ($9 taxed) and hence I am getting $4 credit and $5 carry over (as per calculation).

    Suppose if I increase my interest part on my NRE account in next year (by making CDs), basically making non-taxed part more then my credit goes up and i can use carryover.

    Example: In future If I earn interest of $50 on NRE (not taxed) and $28 ($9 taxed) then my tax credit becomes $9.

48. Modifying Q1 above.

    The interest for the period Apr 01 2012 to March 31,2013 was paid on March 31,2013. The interest for the period Apr 01 2013 to March 31,2014 will be paid on March 31,2014.

    Which interset should I have to show for now?

49. Hi Jan,

    i am filing the return for the yesr 2013. I have couple of questions. It will be great help if you please clarify them.

    1.I have some interest amount earned in my homeland(India) for the period Apr 01 2012 to March 31,2013. Also there will be some interest earned during Apr 01 2013 to March 31,2014. Which interset should I have to show for now?

    2. what is the tax % for that amount in US as I have already paid some tax on that income in my homeland?

    3.I have some dividends earned on some shares held in my homeland but the total amount is less that $10. Do i still need to show it here in US. If yes, where?

    4.Which all forms i need to fill to complete my tax return here in US.?

    Many Thanks!

50. Hi Bob,
    That’s an excellent question. I still say no. I can’t find anything to contradict me, but if somebody finds a credible source I’ll concede the point.

    The thing is–there’s a difference between buying and selling currencies for profit–that’s a case where you would report your capital gains. But how would anyone be able to determine their gains on currency on a regular bank account? How do you figure out the basis? Now, if you open a bank account with $1000 on June 1, 2012 and then close it on December 31, 2013–well you would be able to figure out the capital gain pretty easily.

    But that’s not the way it works in real life. You put some money in, take it out, put more in, take more out. So which date do you use for the start date? You really can’t compute the basis. That’s why I say you don’t pay a capital gain when you close your foreign bank account.

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