QUESTION: Please help. I changed some of my dollars for Euro's. What
is the gain? Capital gain or regular gain? What is the rate of tax?

REPLY: The purchase of foreign currencies for investment purposes is
treated the same as other investments. If you bought some Euros and
haven't sold them yet, there is no gain until the Euros are sold or
converted to something else.

If you are an investor, any gain or loss would be a capital gain or
loss. Losses are deductible to the extent of any other capital gains,
plus $3,000 of other income or any kind. Excess losses can be carried
forward to the next year. The tax treatment of gains depends on
whether they are short term gains or long term gains. Short term gains
are taxed the same as other "ordinary" income. (Ordinary income is
income that isn't subject to any special treatment.) Gains on
investments held more than a year are treated as long term gains. The
maximum tax rate on such gains in 2007 would be 15% and is zero% in
2008. A lower capital gains tax rate may be available in 2007 for
taxpayers whose top tax bracket is 15%.

The treatment of currency gains and losses for the purchase of
investments denominated in a foreign currency are generally (not
always) included as part of the total gain or loss, measured by US$
paid for the investment and US$ received from the investment. However,
exceptions apply for debt obligations, for business transactions and
for what are called personal currency transactionsm -- such as for
tourists. I've just updated an extensive article about the tax
treatment of investments denominated in foreign currencies and it will
be on the paid subscribers' web site by the middle of the month. (And
no, I didn't make up this question to promote that report.)

Vern

IRS Regulations require that I include the following statement with
any written explanation of the tax law. The comments in this
memorandum are not intended to constitute an opinion regarding any
specific tax issues because additional tax issues may exist that could
affect the tax treatment of the tax issues addressed in this memo.
This memorandum does not consider or reach a conclusion with respect
to those additional issues and was not written and cannot be used for
the purpose of avoiding penalties under code section 6662(d). For
further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm