For much of history, physical gold and silver have been valued as tangible stores of wealth, offering investors a potential hedge against inflation, currency fluctuations, and economic uncertainty. However, as with any investment, any profits can be undercut if you don't understand the tax implications of owning these precious metals.
In this article, we review how physical gold and silver investments are taxed, helping you make better, more informed decisions about investing in these classic stores of value.
Key Takeaways
- Physical gold and silver investments are subject to capital gains tax, calculated based on the difference between the price you paid and the price you sold it for.
- The Internal Revenue Service (IRS) classifies gold and silver as collectibles. Hence, they are taxed at a maximum rate of 28% on long-term capital gains.
- If the gold or silver is yours for less than a year, any gains are taxed as ordinary income, which is often 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, which will cut the taxable gain you must report when it's 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, regardless of their form—such as bullion coins, bullion bars, rare coinage, or ingots—are subject to capital gains tax. The capital gains tax is only owed after you sell your holdings.
While 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. Physical holdings in gold or silver have a capital gains tax equal to your marginal tax rate, up to a maximum of 28%. This means individuals in the 33%, 35%, and 39.6% tax brackets only have to pay 28% on their physical precious metals sales. Short-term gains—those for precious metals held less than a year—are taxed at ordinary income rates.
Reporting Requirements
Tax liabilities on the sale of precious metals are not due when the sale is made. Instead, physical gold or silver sales need to be reported on Schedule D of Form 1040 of your tax return. Depending on the type of metal you are selling, Form 1099-B must be submitted to the IRS for the year of the sale, as such 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 1-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 do not require a form 1099-B filing. The tax bill for all these sales is due at the same time as your ordinary income taxes.
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 themselves. If you bought the metals yourself, then the cost basis is equal to the amount paid for the metal. The IRS does allow you to add certain costs to the basis, e.g., appraisals and storage, that can reduce your tax liability.
There are two additional scenarios for calculating the cost basis of physical gold or silver:
- If you receive the metals as a gift, the cost basis is equal to the market value of the metals on the date that the giver purchased them. If the market value is less than what the person giving them to you paid, then the cost basis is equal to the market value on the day that you receive the gift.
- If you inherit gold or silver, the cost basis is equal to the market value on the date of death of the person from whom you inherited the metals.
Tax Example and Offset Possibilities
Suppose you bought 100 ounces of physical gold at $1,330 per ounce. Two years later, you sell all your gold holdings for $2,300 per ounce. You are in the 39.6% 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. For example, if you sell silver at a $500 loss, you can combine these amounts and only owe $26,660. Alternatively, 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 also want to keep records of any associated expenses, such as storage or insurance costs, which 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. If your losses exceed your gains, you can use up to $3,000 of the excess loss to offset other income. 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, if you hold gold or silver in a self-directed IRA, specific tax rules apply. Contributions to a traditional IRA may be tax-deductible, and the investments grow tax-deferred until you take distributions. However, not all forms of gold and silver are eligible for inclusion in an IRA.
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), 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 are held as physical assets or within retirement accounts.
These investments are subject to capital gains tax, which is calculated based on the difference between the purchase and sales price. The IRS classifies gold and silver as collectibles, imposing a maximum tax rate of 28% on long-term capital gains. However, if these metals are held for less than a year, profits are taxed as ordinary income, potentially higher than long-term capital gains. In addition, the cost basis for these investments includes the purchase price and any additional costs you had, like storage fees, which can help defray the taxable gain when you sell the assets. Lastly, the requirements for purity and storage of gold and silver in IRAs underscore the importance of meticulous planning and record keeping whenever tax rules are involved.
