How are foreign currency exchange gains taxed in Pennsylvania?

How are foreign currency exchange gains taxed in Pennsylvania? Is it the same as a capital gains or some other way? 

Unlike federal individual income tax rules, Pennsylvania does not have a capital gains tax provision or special tax rate for individuals. Pennsylvania taxes individuals at a flat 3.07% rate on all categories of reportable income, including gains or losses from the sale, exchange, or disposition of property.

Internal Revenue Code Section 988 outlines the federal income tax treatment for foreign currency exchange gains and losses realized from trading activities. For Pennsylvania individual income tax purposes, gains and losses from foreign currency exchange trading are treated as gains or losses from the sale, exchange, or disposition of property, and it is reported on Form PA-40, Schedule D.  

It is important to distinguish the differences between federal and Pennsylvania treatment for various sale transactions. For a more in-depth tax analysis, reach out to your CPA.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: James G. McGrory, CPA, and Stephanie K. Otake, CPA, are with Drucker & Scaccetti in Philadelphia.