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The short answer
For a US person converting naira held for personal reasons, an exchange-rate gain is not taxed if it is $200 or less on that transaction, under section 988(e) of the Internal Revenue Code; above $200 the whole gain is recognised, generally as a capital gain. Losses on personal currency are not deductible, and because the naira has mostly fallen against the dollar, a loss is the more common result. Naira earned or held in a business or investment activity follows different, ordinary-income rules.
US tax is worked out in dollars, so the IRS treats naira as property whose dollar value moves. When you convert naira back to dollars, the question is whether the dollars you get are more than the dollars the naira was worth when you acquired it. If so, there is a currency gain. Whether it is taxed depends on why you held the naira and how large the gain is.
The rule for personal naira
Section 988 of the Internal Revenue Code sets the general rule: foreign currency gains and losses are computed separately and treated as ordinary income or loss. But section 988(e) carves out individuals' personal transactions:
- The section 988 rules do not apply to a personal transaction entered into by an individual (988(e)(1)).
- When an individual disposes of foreign currency in a personal transaction, no gain is recognised from exchange-rate changes after the currency was acquired, unless the gain exceeds $200 (988(e)(2)).
- A transaction is personal unless its expenses would be deductible as trade or business expenses (section 162) or investment expenses (section 212) (988(e)(3)).
The $200 is a threshold, not an allowance: if a single conversion produces $201 of gain, the whole $201 is recognised. Because a personal holding sits outside the ordinary-income rules, the general capital-asset rules apply; the IRS says almost everything you own for personal or investment use is a capital asset, with gains held more than one year treated as long-term (IRS Topic 409). Ask your preparer how this applies to your figures.
Working out the dollar figures
You need two dollar values: what the naira was worth in dollars when you got it, and what you received when you converted. The IRS says to use the exchange rate prevailing when you receive, pay or accrue an item; it does not publish an official rate and points to sources such as banks, the Treasury and the Federal Reserve (IRS foreign currency page, updated May 2026). For naira you bought with dollars, your bank's conversion record is the best evidence.
The statute measures the $200 on "the transaction", so each conversion is tested on its own; there is no annual allowance to use up. If you acquired naira at different times and rates, you need a consistent way to match which naira you are converting. Keep it simple and documented, and use the same method each year.
Worked examples
| Example A | Example B | |
|---|---|---|
| Naira acquired | ₦3,000,000 at an example ₦1,500 per $ | ₦15,000,000 at an example ₦1,600 per $ |
| Dollar cost | $2,000.00 | $9,375.00 |
| Converted back at | Example ₦1,400 per $ | Example ₦1,400 per $ |
| Dollars received | $2,142.86 | $10,714.29 |
| Gain | $142.86 | $1,339.29 |
| Result | Not recognised: $200 or less | Whole gain recognised; capital gain, long-term if held over a year |
These are illustrations with made-up rates. Real movements have mostly run the other way. The naira closed at ₦702.19 per dollar at the official I&E window on 15 June 2023 (AllAfrica), and the DMO converted its June 2026 debt figures at a CBN official rate of ₦1,379.18 per dollar (Nairametrics, 26 September 2026). Naira acquired in mid-2023 and converted in mid-2026 would show a currency loss, not a gain.
Losses
A loss on personal naira is generally not deductible. The IRS says losses from the sale of personal-use property are not deductible (IRS Topic 409), and personal transactions are outside section 988's ordinary-loss treatment. So a diaspora family that loses dollar value on naira savings usually gets no US tax relief for it.
When the personal rule does not apply
If the naira is tied to a business or investment activity, it is not a personal transaction, and section 988's ordinary-income rules can apply to gains and losses. Examples include:
- Rent from a Lagos flat collected in naira and later converted. Rental expenses are deductible, so the activity falls outside the personal definition.
- Fees from Nigerian clients paid in naira to a sole proprietorship. See converting naira invoices for Schedule C.
- Naira bought to fund an investment, such as Treasury bills.
In these cases the income itself is converted at the rate when received, and any later currency movement before conversion is a separate gain or loss. Our guide to which rate to use on a US return covers the conversion step.
What to keep
- The date, amount and rate of each time you acquired naira, from bank or app records.
- The date, amount and rate of each conversion back to dollars.
- A note of why you held the naira: family spending, rent, business or investment.
Balances held in Nigeria may also need reporting; see holding naira as a US citizen. This is information, not tax advice.
Where Pryme fits
When you convert with Swap, the app shows the rate and the fee before you approve, and the record of each conversion is the kind of evidence the calculation above needs. Outside Nigeria, Pryme's services are provided through regulated partners.
Questions people ask
Is a gain on converting naira to dollars taxable?
For personal naira, not if the gain on that conversion is $200 or less. Above $200, the whole gain is recognised, generally as a capital gain.
What is the $200 foreign currency rule?
Section 988(e)(2): an individual's exchange gain on a personal transaction is not recognised unless it exceeds $200.
Can I deduct a loss when the naira falls?
Generally not for personal holdings. Losses on personal-use property are not deductible, per the IRS.
Does the $200 rule apply to naira rent from Nigeria?
No. Rental and business activities are not personal transactions, so section 988's ordinary rules can apply.
Sources
- Cornell LII: 26 U.S. Code 988, Treatment of certain foreign currency transactions · accessed Oct 2026
- IRS: Foreign currency and currency exchange rates · accessed Oct 2026
- IRS: Topic 409, Capital gains and losses · accessed Oct 2026
- AllAfrica: Naira extends losses at I&E window, 16 Jun 2023 · accessed Oct 2026
- Nairametrics: Nigeria's public debt rises to N166.79 trillion in Q2 2026, 26 Sep 2026 · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.