MONEY matters

Mark Zaifman's thoughts on money, global economic trends and politics

Beware the Taxman When Selling Gold, Silver or Other Precious Metals

Mark Zaifman   |    Sat, Apr 30, 2011 @ 08:00 AM
selling precious metals

With the amazing rise in the value of gold, silver and other precious metals in the past few years many investors are looking to cash in on some of the spectacular profits they’re currently sitting on.

Before commodity ETF's became all the rage, many precious metal investors preferred, and still do prefer, owning the metal directly instead of through a stock fund. Firms such as Bullion Vault and The Perth Mint offer investors an opportunity to actually own an allocation of gold or silver.

I’ve had quite a few investment management clients as well as potential clients contact me since the beginning of the year asking for tax advice on the sale of their gold or silver holdings. Not only do these investors want to lock in their huge profits, but many believe the current 15% long-term capital gains tax rate will soon be heading towards 25% in the near future. I happen to agree with this belief.

When Selling Silver or Gold

But here’s the deal. When selling your precious metals, you will pay federal and state taxes on your gain. As of this writing, gold, silver, and platinum bullion (and any type of coins) are treated as collectibles, which means that gains are usually at the 'Collectibles' rate of 28% (it gets reported on the 1040 Schedule D).

Note that you may need to file estimated taxes after you sell bullion. This is typically the case if you end up owing the IRS at least $1,000 after withholdings are accounted for.

How are commodity ETFs taxed?

Many commodity ETF’s use futures contracts to obtain their commodities exposure while others, like the SPDR Gold Shares (GLD), own the physical commodity. Under current tax law, commodity ETF’s that hold physical gold or silver are taxed at a long-term capital gains rate of 28%. Commodity products that use futures contracts are taxed each year even if you don't sell them. Capital gains are currently taxed at a hybrid rate of 60% long-term and 40% short-term gains.

Will a higher tax rate than you expected keep you from selling your precious metals?


help with tax planning

gold bar photo by BullionVault