How are gold mining etfs taxed?

Gold and Silver ETF Owners Face 28% Tax Rate on Profits. That's higher than stock liens. Exchange-traded funds backed by precious metals such as gold and silver are treated as collectibles for tax purposes, accountants say. That means they have a 28% higher federal tax rate on long-term capital gains.

Long-term gains on bullion are taxed according to your ordinary income tax rate, up to a maximum rate of 28%. Short-term gains in bullion, like other investments, are taxed as ordinary income. An asset must be held for more than one year for gains or losses to be long-term. Gold exchange-traded funds are one of the most popular investments this year, with war, inflation and stock market volatility causing people to struggle to find safe havens.

But those who buy physical gold ETFs may face an unexpected tax burden. It might come as a surprise to people who have recently started trading their own for the first time, eager to take advantage of spikes in almost every asset class. With apps like Robinhood and Webull, starting trading has never been easier. But understanding the tax implications is more difficult, as reporting on crypto stocks and tokens is already creating confusion for some retail investors.

Even for those who have spent years buying and selling ETFs, the complexities of taxation on gold products can be unwanted news. In addition, trading applications usually don't provide much information about the potential tax ramifications of different holdings. When the maximum capital gains tax rate dropped to 20% in the 1990s, collectibles were excluded and left at the old maximum rate of 28%. Because these ETFs are backed by physical metal, their shares are treated the same way as stamps, antiques, or gems.

There are more things to consider, besides taxes, when deciding whether to invest in physical gold or in shares of gold mining companies, said Nate Geraci, president of ETF Store, an investment advisor. Please log in again before continuing. There was an error logging in. Gold-backed ETFs can be bought and sold like any stock or fund, so they can easily fit into the rest of your portfolio.

As indicated, they offer a direct game on the price of gold. On the downside, gold-backed ETFs are taxed as collectibles, even though they appear to be similar to traditional traded securities. If you sell one of these ETFs at a profit after a retention period of more than one year, you won't benefit from low long-term capital gains tax rates. Instead, long-term gains will be taxed as ordinary income, with tax rates up to 28%.

This is a simplified example, but a successful investment in mining stocks could be more lucrative than an investment in physical gold or bullion backed ETFs, if gold rises in price. Profit margins on gold bars are usually lower than on country-specific gold coins, but both are collectibles for tax purposes. Gold exchange-traded bonds (ETNs) are debt securities where the rate of return is tied to an underlying gold index. Alternatively, a physical gold CEF is a direct investment in gold, but has the benefit of LTCG rate taxes.

Gold is often taxed differently than other investments, and tax rules vary depending on which of the many different ways of investing in gold you choose. While almost none of the profitability of physical gold is explained by market profitability (with R-Square market statistics close to zero), the stock exchange accounts for around 20% of the profitability of gold mining stocks. The typical approach to investing in gold futures contracts is by buying gold futures ETFs or ETNs. The restriction was intended to reduce gold grabbing, which according to the gold monetary standard was believed to be stifling economic growth, and lasted more than 40 years before being lifted in 1975. Investors often perceive the high costs of owning gold as trader profit margin and gold storage fees physical, or management fees and trading costs of gold funds.

Whether through a brokerage account or through a traditional Roth or IRA account, individuals can also invest in gold indirectly through a variety of funds, shares of gold mining corporations, and other vehicles, including exchange-traded funds (ETFs) and exchange-traded notes. At press time, Dion Money Management owned the Market Vectors Junior Gold Miners ETF and iShares Comex Gold. As a result, the combination of return and risk is somewhat different for physical gold funds versus gold mining funds. Investors in physical gold funds may be surprised to learn that such funds are taxed as “collectibles”, just like real gold bars.

Another way to put gold in your portfolio is to buy shares in a gold mining company, or shares in a fund that holds shares in a mining company. For example, VanEck Merk Gold (OUNZ) owns gold bars and stores them in vaults, but allows investors to exchange their shares for bullion or bullion coins. The annualized after-tax return of gold coins is the lowest, about one percentage point lower than that of the gold mutual fund, which receives the LTCG treatment. .


Eugene Galuska
Eugene Galuska

Certified organizer. Evil twitter ninja. Proud beer maven. Extreme zombie buff. Extreme thinker. Lifelong internet geek.