USA Sale of foreign rental real estate

Jul 12, 2018
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United States
When a real estate rental property located abroad is sold how is the exchange rate gain or loss on the mortgage payoff treated?

1. As the mortgage is paid down through monthly principal repayments (as generally occurs) is each payment a taxable event triggering a Section 988 gain or loss for that tax year? If not, are these payments treated as adjustments to the US dollar cost basis of the remaining mortgage balance?

Suppose the mortgage was refinanced before the property was sold and cash (in foreign currency) was taken out.

2. Is this considered a total payout of the mortgage and a taxable event under Section 988? Or is it a nontaxable event which only changes the US dollar cost basis of the remaining mortgage balance?

3. Are Section 988 losses on a mortgage covering a rental property (as opposed to a personal residence) allowable?


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