Many investors prefer to own physical gold and silver rather than exchange traded funds (ETFs) that invest in these precious metals. Although the tax implications of owning and selling ETFs are very simple, few people fully understand the tax implications of owning and selling physical ETFs. ingots. Below is a description of how these investments are taxed, along with their tax reporting requirements, basic cost calculations, and ways to offset any tax liability arising from the sale of gold or gold. physical money.
Tax Implications of Selling Physical Gold or Silver
Physical assets in precious metals such as gold, silver, platinum, palladium, and titanium are considered by the Internal Revenue Service (IRS) to be capital assets specifically classified as collectibles. Holdings in these metals, whatever their form, such as bullion coins, gold bars, rare coin, or bullion, are subject to capital gains tax. THE capital gains tax is only due after the sale of these participations and if they have been held for more than one year.
While many tradable financial securities, such as stocks, mutual funds, and ETFs, are subject to short- or long-term capital gains tax rates, the sale of physical precious metals is imposed slightly differently. Physical holdings of gold or silver are subject to capital gains tax equal to your marginal tax rate, up to a maximum of 28%. This means that individuals in the 33%, 35% and 39.6% tax brackets only have to pay 28% on their physical sales of precious metals. Short-term gains on precious metals are taxed at ordinary income rates.
Tax obligations on the sale of precious metals are not due at the time the sale is made. Instead, sales of physical gold or silver must be reported on Schedule D of Form 1040 of your tax return. Depending on the type of metal you sell, form 1099-B must be submitted to the IRS at the time of sale, as such sales are considered income.Items requiring such a deposit include 90% silver dimes with a face value of $1,000, a quarter or half dollar, and 25 or more gold maple leaf coins with a face value of $1,000. ounce, gold Krugerrand or Mexican Onza in gold. Gold and silver bars weighing 1 kilogram or 1,000 troy ounces also require a deposit. American Gold Eagle coin sales do not require Form 1099-B filing.The tax bill for all of these sales is due at the same time as your regular income tax bill.
Cost Basis of Physical Gold and Silver
The amount of tax due on the sale of precious metals depends on the cost basis metals themselves. If you purchase the metals yourself, the base price is equal to the amount paid for the metal. The IRS allows you to add certain costs to the basis, which can reduce your tax liability in the future. Certain elements, such as the cost of expertise, can be added.
There are two special scenarios for calculating the cost basis of physical gold or silver. First, if you receive the metals as a gift, the cost basis is equal to the market value of the metals on the date the giver purchased them. If, at the time of the gift, the market value of the metals is less than what the person who gave them to you paid, then the cost basis is equal to the market value on the day you receive the gift. As for the second special scenario, if you inherit gold or silverthen the cost basis is equal to the market value on the date of death of the person from whom you inherited the metals.
Example of tax and compensation possibilities
As an example, let’s say you buy 100 ounces of physical gold today at $1,330 per ounce. Two years later, you sell all your gold holdings for $1,500 per ounce. You are in the 39.6% tax bracket. The following scenario occurs:
Cost basis = (100 x $1,330) = $133,000
Proceeds from sale = (100 x $1,550) = $150,000
Capital gains = $150,000 – $133,000 = $17,000
Tax due = 28% (maximum percentage) x $17,000 = $4,760
Capital losses on other collectibles can be used to offset a tax liability. For example, if you sell silver at a loss of $500, then you can offset these amounts and only owe $4,260. Or, you can save the $500 as loss carried forward for the future.