The Internal Revenue Service (IRS) classifies gold and other precious metals as collectibles that are taxed at a long-term capital gain rate of 28%. Gains on most other assets held for more than one year are subject to long-term capital gain rates of 15% or 20%. The Internal Revenue Service (IRS) considers physical holdings of precious metals such as gold, silver, platinum, palladium and titanium to be capital assets specifically classified as collectibles. Holdings of these metals, regardless of their form, such as bullion coins, bullion coins, rare coins or bullion are subject to capital gains tax.
Capital gains tax is only due after the sale of such shares and if the holdings were held for more than one year. The IRS taxes capital gains on gold the same way it taxes any other investment asset. But if you've bought physical gold, you're likely to owe a 28% higher tax rate as a collector's item. Avoid investing in physical metal and you can minimize your capital gains taxes at the regular rate of long-term capital gains.
And, when possible, keep your gold investments for at least a year before selling to avoid higher tax rates. Ingots are a collector's item according to the tax code. That means you are not eligible for regular treatment of long-term capital gains. In contrast, bullion gains that hold the longest in a year are taxed at a maximum tax rate of 28%.
Gains held in bullion for one year or less are taxed as revenue. 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.
Report Profit from Selling Gold Using Form 1040, Schedule D. If you owned gold for more than a year, it is a long-term capital gain and is subject to the tax rate of 28 percent of collectible capital gains. If you owned gold for a year or less, you will have a short-term profit. Short-term gains are taxed at ordinary income tax rates that apply to other income, such as wages.
You can report any loss from selling gold in Schedule D and use it as a tax deduction. The typical approach to investing in gold futures contracts is by buying gold futures ETFs or ETNs. Profit margins on gold bars are usually lower than on country-specific gold coins, but both are collectibles for tax purposes. Roth IRA investors pay income tax up front on a purchase, but all future growth is tax-free; investors with a pre-tax IRA pay their regular income tax rates when they withdraw money during retirement.
This fund buys a series of gold futures contracts that should have essentially the same performance as a gold index that the fund is trying to track, although there are anomalies in futures markets that can cause deviations. Alternatively, a physical gold CEF is a direct investment in gold, but has the benefit of LTCG rate taxes. This means that when a gold ETF sells part of the gold it holds, you have a short- or long-term profit or loss. Gold exchange-traded funds (ETFs) offer an alternative to buying gold bars and trade like stocks.
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 rising in 1975. You can trade gold futures yourself or own an ETF that handles trading, such as the PowerShares DB Gold Fund (DGL). And since gold is an investment asset, when you sell your gold and make a profit, it's taxed as capital gains. 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.
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. If you die before you sell and your heirs inherit the gold, the basis of your cost will be the fair market value of the gold on the date of your death. Gold exchange-traded bonds (ETNs) are debt securities where the rate of return is tied to an underlying gold index. 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.