How do I figure currency gains when investing in foreign stocks? Imagine I convert 2000 USD to CAD and buy 1000 USD worth of a Canadian company. Ten years later the CAD doubles against the USD and the company doubles in CAD. So my stock investment multiplies by 4 and my cash sitting in CAD doubles. When I convert back to USD I end up with 6000 USD.
How do I figure out the tax gain? You're supposed to convert your stock trade prices into USD, right? But what about the currency gain outside of the stock trade? If I do a direct capital gain calculation on my currency trades I end up adding an excess $1000 to my gains and adding $2000 to my net sales that have no cost basis. But if it's okay to ignore the currency appreciation, it's a currency trader's loop-hole. The third option is to add up the currency portion of stock appreciations and subtract that from the currency gains which could become unbelievably convoluted.
