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Physical gold and silver have been valued as tangible stores of wealth throughout much of history. They offer investors a potential hedge against inflation, currency fluctuations, and economic uncertainty. Any profits can be undercut if you don’t understand the tax implications of owning these precious metals, however.
Key Takeaways
- Physical gold and silver investments are subject to the capital gains tax that’s calculated based on the difference between the price you paid and the price for which you sold them.
- The Internal Revenue Service (IRS) classifies gold and silver as collectibles so long-term capital gains are taxed at a maximum rate of 28%.
- Gains are taxed as ordinary income if you hold the gold or silver for one year or less and these tax rates can be significantly higher than the long-term capital gains rate.
- The cost basis of gold and silver investments includes the purchase price plus any associated costs such as dealer premiums and storage fees and these will cut the taxable gain you must report when they’re sold.
Tax Implications of Selling Physical Gold or Silver
The IRS considers physical holdings in precious metals such as gold, silver, platinum, palladium, and titanium to be collectibles. Holdings in these metals are subject to capital gains tax regardless of their form, whether they’re bullion coins, bullion bars, rare coinage, or ingots. The capital gains tax is only owed after you sell your holdings, however.
Many tradable financial securities such as stocks, mutual funds, and exchange-traded funds are also subject to short-term or long-term capital gains tax rates. The sale of precious metals is taxed differently, however. Physical holdings in gold or silver are subject to a capital gains tax that’s equal to your marginal tax rate up to a maximum of 28%.
Individuals in the 32%, 35%, and 37% ordinary income tax brackets only have to pay 28% on their physical precious metals sales. Short-term gains from precious metals held for one year or less are taxed at ordinary income rates, however.
Reporting Requirements
Tax liabilities on the sale of precious metals aren’t due at the time the sale is made. Physical gold or silver sales must be reported on Schedule D of Form 1040 when you file your tax return. Form 1099-B must be submitted to the IRS for the year of the sale depending on the type of metal you’re selling because these sales are considered income.
Items that require this filing include a $1,000 face value of U.S. 90% silver dimes, quarter or half dollars, and 25 or more one-ounce Gold Maple Leaf, Gold Krugerrand, or Gold Mexican Onza coins. Gold and silver bars that are one kilogram or 1,000 troy ounces also require the filing. American Gold Eagle coin sales don’t require a Form 1099-B filing.
Important
The tax bill for all these sales is due at the same time as your ordinary income tax.
Cost Basis of Physical Gold and Silver
The amount of tax owed on the sale of precious metals depends on the cost basis of the metals. The cost basis is equal to the amount you paid if you bought the metals yourself. The IRS does allow you to add certain costs to the basis such as appraisals and storage that can reduce your tax liability.
There are two additional scenarios for calculating the cost basis of physical gold or silver:
- The cost basis is equal to the market value of the metals on the date the giver purchased them if you receive the metals as a gift. The cost basis is equal to the market value on the day that you receive the gift if the market value is less than what the person giving it to you paid.
- The cost basis is equal to the market value on the date of death of the giver if you inherit gold or silver.
Tax Example and Offset Possibilities
Suppose you bought 100 ounces of physical gold at $1,330 per ounce. You sell all your gold holdings for $2,300 per ounce two years later. You’re in the 37% ordinary income tax bracket, but physical gold and other collectibles are taxed at a maximum long-term capital gains rate of 28%. Here’s how to calculate your taxes:
Cost basis = (100 × $1,330) = $133,000
Sale proceeds = (100 × $2,300) = $230,000
Capital gains = $230,000 – $133,000 = $97,000
Tax due = 28% (maximum percentage) × $97,000 = $27,160
Capital losses on other collectibles can be used to offset a tax liability. You can combine these amounts and only owe $26,660 if you sell silver at a $500 loss or you can save the $500 as a loss carry forward for the future.
What Records Should I Keep for Tax Purposes When Buying and Selling Gold and Silver?
Keep receipts and documentation for the purchase prices, dates of acquisition, sale prices, and dates of sale. You’ll also want to keep records of any associated expenses such as storage or insurance costs that you can deduct from the cost basis. Proper record keeping helps ensure accurate reporting on your tax returns and protects you should there be an audit.
Can I Offset Losses From Gold and Silver Investments Against Other Capital Gains?
Yes, losses from gold and silver investments can be used to offset other capital gains, potentially reducing your taxes. You can use up to $3,000 of the excess loss to offset other income if your losses exceed your gains. Any remaining loss can be carried forward to future years.
Are There Any Special Tax Considerations for Gold and Silver Held in an IRA?
Yes, specific tax rules apply if you hold gold or silver in a self-directed IRA. Contributions to a traditional IRA may be tax-deductible and the investments grow tax-deferred until you take distributions. Not all forms of gold and silver are eligible for inclusion in an IRA, however. The IRS has strict requirements regarding the purity and form of the precious metals.
Gold must be at least 99.5% pure, equivalent to 24 karats. Common eligible gold investments include American Gold Eagle coins which are technically 91.67% pure but are allowed in IRAs, as well as Canadian Gold Maple Leaf coins and certain gold bars and rounds produced by accredited refiners or national government mints.
Silver must be at least 99.9% pure. Eligible silver investments include American Silver Eagle coins, Canadian Silver Maple Leaf coins, and silver bars and rounds that meet the fineness standard and are produced by accredited manufacturers.
The Bottom Line
Investing in gold and silver can be a hedge against inflation and economic uncertainty but understanding the tax implications is essential to maximizing your returns. The IRS has specific rules for the taxation of these precious metals whether they’re held as physical assets or within retirement accounts.
These investments are subject to the capital gains tax which is calculated based on the difference between the purchase and sales prices. The IRS classifies gold and silver as collectibles, imposing a maximum tax rate of 28% on long-term capital gains. Profits are taxed as ordinary income, however, if these metals are held for one year or less. These rates can be higher than the long-term capital gains tax rate.
The cost basis for these investments includes the purchase price and any additional costs you had such as storage fees, however. This can help defray the taxable gain when you sell the assets.
The requirements for purity and storage of gold and silver in IRAs underscore the importance of meticulous planning and record keeping when tax rules are involved.
