IRS Foreign Exchange Rates for Expats Explained

All amounts on a U.S. tax return must be reported in U.S. dollars, even if you earned every penny in a foreign currency. According to the IRS, there is no official IRS exchange rate. The IRS accepts any posted exchange rate that is used consistently, but the rate you choose must match your specific facts and circumstances.

The rules for which rate to use depend on what you’re reporting:

Salary and recurring income (Form 1040): Use the IRS yearly average exchange rate for the tax year
One-time transactions (property sales, lump-sum payments): Use the spot rate on the date of the transaction
Foreign bank account values (FBAR/FinCEN Form 114): Use the Treasury Reporting Rate of Exchange for December 31 of the reporting year
Foreign financial assets (FATCA/Form 8938): Use the exchange rate for the last day of the tax year for year-end values, or the rate on the date of the maximum value during the year

Using the Right Exchange Rate Matters for Your Taxes

Greenback helps you apply IRS-approved foreign exchange rates correctly.

Here’s how each rule works, where to find the rates, and how to avoid common conversion mistakes.

Why Do Exchange Rates Matter for Expat Taxes?

Every year, Americans living abroad must file a U.S. federal tax return reporting their worldwide income. Depending on your situation, you may also need to file an FBAR (if your foreign accounts exceed $10,000) and FATCA Form 8938 (if your foreign assets exceed reporting thresholds).

All of these forms require amounts in U.S. dollars. If you’re paid in euros, pounds, yen, or any other currency, you need to convert those amounts before reporting them. Using the wrong rate or inconsistent use of different rates can result in inaccurate reporting and potential IRS scrutiny.

Which Exchange Rate Should I Use?

The IRS does not mandate a single exchange rate source. Instead, it requires that you use a rate appropriate to your situation and apply it consistently. In practice, this means different types of income and assets call for different rates.

For Salary, Wages, and Recurring Income

If you receive income steadily throughout the year (a monthly salary, regular freelance payments, recurring rental income), use the IRS yearly average exchange rate for the applicable tax year. This smooths out daily currency fluctuations and simplifies conversion when you have many transactions over 12 months.

The IRS publishes yearly average rates for dozens of currencies on its yearly average exchange rates page. The table currently covers the most recent five years.

How to convert: Divide the foreign currency amount by the yearly average exchange rate.

Example: You earned 1,200,000 Japanese yen in salary during the 2025 tax year. The IRS yearly average rate for 2025 is approximately 149.63 JPY per USD.

1,200,000 JPY / 149.63 = approximately $8,020 USD

That’s the amount you would report on your Form 1040.

For One-Time Transactions

If you received income from a single event on a specific date (selling property, receiving a bonus, closing a business deal), use the spot rate on the date of the transaction. The spot rate is the market exchange rate on that particular day.

You can find daily spot rates from sources like OANDA, Xe, or X-Rates, all of which the IRS references on its foreign currency page.

Example: You sold a rental property in Mexico on June 15, 2025, for 5,000,000 MXN. The spot rate on June 15 was 17.85 MXN per USD.

5,000,000 MXN / 17.85 = approximately $280,112 USD

For FBAR (FinCEN Form 114)

The FBAR has its own conversion rule, separate from income tax reporting. When reporting the maximum value of your foreign financial accounts on the FBAR, you must use the Treasury Reporting Rate of Exchange for December 31 of the year being reported.

This is a different rate source from what you use on your tax return. The Treasury Department publishes these rates quarterly through the Bureau of the Fiscal Service.

This is one of the most common mistakes expats make: using the IRS yearly average rate for FBAR values. The FBAR requires the Treasury rate, not the IRS rate. Using the wrong source can lead to misreported account values.

If the Treasury Department does not publish a rate for a particular currency, use the exchange rate from a verifiable financial source (such as a bank or a publicly available converter) as of December 31.

For FATCA (Form 8938)

When reporting foreign financial assets on Form 8938, convert the maximum value of each asset during the year using the exchange rate on the date the asset reached its highest value. For year-end values, use the exchange rate for December 31.

The IRS does not specify a required source for FATCA conversions. You can use the IRS yearly average rate, Treasury rates, or other verifiable sources, as long as you’re consistent.

How Do I Convert Foreign Currency to U.S. Dollars?

The formulas are the same regardless of which rate you’re using:

Foreign currency to USD: Divide the foreign currency amount by the exchange rate (expressed as foreign currency units per one USD).
USD to foreign currency: Multiply the USD amount by the exchange rate.

Conversion Examples

Scenario	Foreign Amount	Rate	Calculation	USD Result
UK salary (2025 yearly avg)	£70,000	0.7832 GBP per USD	70,000 / 0.7832	~$89,378
Euro rental income (2025 yearly avg)	24,000 EUR	0.9243 EUR per USD	24,000 / 0.9243	~$25,966
One-time property sale in Canada (spot rate)	500,000 CAD	1.3842 CAD per USD	500,000 / 1.3842	~$361,293
FBAR account max value (Treasury rate, Dec 31)	150,000 AUD	Use Treasury rate for Dec 31	150,000 / applicable rate	Varies by year

Rounding: All amounts on U.S. tax forms must be rounded to the nearest whole dollar.

Where Do I Find Exchange Rates?

What You’re Converting	Rate Source	Where to Find It
Salary, wages, recurring income	IRS yearly average	IRS Yearly Average Exchange Rates
One-time transactions	Spot rate (date of transaction)	OANDA, Xe, X-Rates
FBAR account values	Treasury Reporting Rate (Dec 31)	Bureau of the Fiscal Service
FATCA asset values	Any verifiable rate, used consistently	IRS yearly average, Treasury rates, or bank rates
Currencies not listed by the IRS	Any verifiable, consistently used source	Bank statements, OANDA, Xe, central bank rates

If the IRS does not publish a yearly average rate for your currency, you can use any publicly available rate from a reliable source, as long as you apply it consistently across your return.

Common Exchange Rate Mistakes to Avoid

Using the IRS yearly average rate for FBAR values. The FBAR requires the Treasury Reporting Rate for December 31, not the IRS average. These are different rates from different agencies, and mixing them up is one of the most frequent errors.
Switching rate sources between transactions. If you use the IRS yearly average for your salary, don’t switch to OANDA for your rental income unless there’s a legitimate reason (such as one being a recurring item and the other a one-time transaction). Consistency matters.
Using the exchange rate on the date you received payment rather than the date you earned the income. For accrual-basis items, the rate on the date the income was earned (or accrued) is what matters, not when the money hit your bank account. For most wage earners who report on a cash basis, the distinction is less common, but it matters for business income.
Failing to document your rate sources. Keep a record of which rates you used, where they came from, and the date they applied to. If the IRS questions a conversion, you’ll need to show your work.
Ignoring currency gains or losses. Under IRC Section 988, foreign currency transactions can generate taxable gains or losses. If you convert a large amount of foreign currency to USD and the exchange rate has moved significantly since you earned the income, you may have a reportable currency gain or loss. This most commonly affects expats with large foreign bank balances or those who hold foreign currency as an investment.

Frequently Asked Questions

Does the IRS Have an Official Exchange Rate?

No. The IRS does not set or endorse a single official exchange rate. It accepts any posted rate that is used consistently and that applies to your specific facts and circumstances. The yearly average rates published on the IRS website are a reference tool, not a mandatory standard.

Can I Use a Different Exchange Rate for Each Transaction?

You can use different rates for different types of income (yearly average for salary, spot rate for a property sale), because different types of transactions legitimately call for different rates. What you cannot do is switch between rate sources for the same type of income to get a more favorable conversion.

What Rate Do I Use for Foreign Tax Credit Calculations?

When calculating the Foreign Tax Credit on Form 1116, convert foreign taxes paid using the exchange rate on the date the taxes were paid (or accrued, if you use the accrual method). For taxes withheld from wages throughout the year, the yearly average rate is generally acceptable.

What If My Currency Isn’t on the IRS Table?

The IRS yearly average table covers the most commonly used currencies. If your currency isn’t listed, use a verifiable rate from a reliable source (your local bank, OANDA, Xe, or your country’s central bank) and use it consistently. Keep documentation of the source and the rate.

Do I Need to Convert Amounts Differently for My U.S. and Foreign Tax Returns?

Yes. Your U.S. return requires all amounts to be reported in USD, per the IRS rules described above. Your host country’s tax return will follow that country’s own conversion rules, which may require different rates or methods. This is one reason why U.S. and foreign tax returns can show different figures for the same underlying income, which is normal and expected.

Need Help Getting Your Exchange Rates Right?

Currency conversion is one of the details that separates an accurate expat tax return from one that triggers questions. Getting the rates right protects your return and ensures the FEIE, FTC, and reporting forms all line up correctly.

If you’re ready to be matched with a Greenback accountant, get started today. Have questions about the process or next steps? Contact us, and one of our Customer Champions will be happy to help.

Get Your Currency Conversions Right

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This article is for informational purposes only and should not be considered tax advice. Individual circumstances vary, and you should consult a qualified tax professional for advice specific to your situation.