This post appeared on the RenouceUScitizenship blog.
— U.S. Citizen Abroad (@USCitizenAbroad) October 6, 2014
Almost two years ago to the day, I wrote a post explaining how:
Those wishing to understand how exchange rates affect possible U.S. capital gains liability for Americans abroad should revisit that post. The “Readers Digest” version is as follows:
1. For the purpose of U.S. taxes, all transactions are converted to U.S. dollars (using the applicable rate at the time of the transaction);
2. The result is that fluctuating exchange rates can generate “phantom” capital gains and losses, which can generate U.S. tax liability for Americans abroad.
As the Canadian dollar rises in value, fewer Canadian dollars are needed to purchase a U.S. dollar. The capital gains measured in U.S. dollars would increase.
As the Canadian dollar falls in value, more Canadian dollars are need to purchase a U.S. dollar. The capital gains measured in U.S. dollars would decrease.
The Canadian dollar has fallen by about 10% in the last two years. The above tweet references a video suggesting that, the decline of the Canadian dollar or (as a Homelander would say), the strengthening of the U.S. dollar is EXCELLENT for Americans in Canada considering renouncing U.S. citizenship.