Section 988 Foreign Mortgage Gain

[Adam P]

I am hoping a foreign real estate tax expert can help me on the top of foreign mortgage tax payoff gains, also known as section 988 of the tax code.

I purchased an investment property in Canada in 2013, and financed the property with a Canadian mortgage.  At the time, the US and Canadian dollars were par, so I borrowed $300k Canadian, which equaled $300k USD.  The property value was $330k.

Now that the Canadian dollar has crashed, if I were to sell my investment and pay off the mortgage, do I need to add the mortgage gain to my income taxes?  As $1 Canadian dollar only buys $0.75 US Dollars now, I would only be paying $300k Canadian which is today $225k USD.  So I "made" $75k on the exchange.

I could sell the property today for $375k CAD / $281k USD, which means I have a $49k loss in US Dollars.

In summary, I make $75k USD on the mortgage payoff, but lose $49k USD on the real estate.

I have read that the above example, tax is payable on a mortgage gain when an American sells their principle residences purchased overseas (there was a court case in the 90's which set the precedent, that a mortgage gain could not be offset against a real estate loss).

However, As I purchased the above as an investment property from day 1 (and have had it on my US taxes), could I offset the mortgage gain with the property loss?  I am struggling to find good information on whether section 988 would apply here.