Gold and precious metals are considered collectibles by the IRS and taxed at a similar rate to artwork, antiques and similar investments.
Gold and precious metal gains should typically be reported on Schedule D of your tax return, though whether or not to do so depends on several factors.
Taxes on Capital Gains
When selling capital assets, the IRS taxed their gain or loss. How much you owe depends on how long the asset was held as well as your income tax rate.
Calculating net capital gain or loss involves deducting the purchase price (your basis) from sale proceeds, taking into account commissions or fees paid when purchasing assets, along with special rules from the IRS for certain assets like gifts/inherited property/patents/commodity futures etc.
Precious metals are considered collectibles and subject to long-term capital gains tax rates of 28% plus 3.8% net investment income tax for high earners. You won’t pay capital-gains taxes on investments held within tax-advantaged accounts such as 401(k), an individual retirement arrangement, health savings account (HSA) and 529 college savings plan; tax loss harvesting strategies also enable you to reduce or avoid this tax liability.
Taxes on Long-Term Gains
Capital gains taxes should generally be applied when selling an asset that has been held for more than one year. To calculate your taxable gain, you will need to know its cost basis: which includes both its original purchase price as well as any commissions or fees paid when selling it; then subtract its sales price from your basis to determine its taxable gain.
When selling gold (physical or ETF not structured as commodity ETF) you could face long-term capital gains rates of up to 28% and possibly also incurring net investment income tax of 3.8%.
When selling an IRA or other tax-advantaged account, no capital gains taxes will apply; however, before purchasing similar assets the IRS has implemented what’s known as the wash sale rule; this allows investors to take advantage of market fluctuations by trading regularly in an attempt to maximize tax loss harvesting strategies.
Taxes on Short-Term Gains
Capital gains tax payments depend largely on how long an investment or asset has been held and your federal income tax bracket. Certain assets and investments require extra tax considerations when owning physical gold coins, bars or bullions – such as coins crafted of precious metal.
Gold received through inheritance or gift will be assessed based on its cost of acquisition and period of holding by its source. Therefore, it is advised that you acquire receipts or invoices for its purchase from whomever has given it to you.
No need to be concerned about capital-gains taxes when investing in precious metals in an IRA or similar tax-advantaged account – fully funding these accounts is one of the best ways to avoid paying them on gold investments.
Taxes on Losses
As gold prices decline, losses on investments made with precious metal can become substantial. Like gains, tax treatment of losses on gold investments varies based on investment type; generally speaking, physical gold such as coins and bars is taxed at a higher collectibles rate while investments such as stocks, mutual funds or ETFs receive long-term capital gains treatment under ordinary long-term capital gains laws.
However, losses on gold investments may help offset short- or long-term capital gains since the IRS considers gold to be an intangible financial asset rather than physical one.
An effective strategy for minimizing taxes on gold investments is using precious metals in an individual retirement account (IRA). An IRA enables investors to roll over any recognized gains into similar new investments without incurring tax liabilities; however, storage and insurance fees could offset its advantage; depending on a person’s overall tax situation including other income and deductions it may make an IRA the ideal vehicle for gold investments.