Tax Implications of Selling Physical Gold or Silver

Aug 29, 2022 By Triston Martin

Physical possessions in precious metals like platinum, silver, palladium, titanium, and gold are deemed by authorities like IRS to be capital assets, specifically designated as collectibles. The metals holdings, such as bullion coins, bars of rare bullion coinage, or even ingots, are subject to the capital gains tax. Capital gains tax is payable only upon the sale of these holdings or if the assets were held for longer than one year.

While many tradable financial securities, like mutual funds, stocks, and ETFs, are subject to capital gains that are either long-term or short-term tax rates, however, the physical sale of valuable metals is taxed differently. Physical assets in silver or gold are subject to an income tax on capital gains equal to the marginal tax rate you pay, up to a maximum rate of 28 percent. This means those who fall in the 33%, 35%, and 39.6 tax brackets must only pay 28% tax on tangible precious metals transactions. Gains on short-term precious metals are taxed at normal income rates.

Reporting Requirements

Tax obligations arising from sales of metals that are precious aren't due until the moment the sale is completed. Instead, any sales of physical silver or gold must be recorded in Schedule D on Form 1040, which is included on the tax returns. Form 1099-B should be filed with IRS before the sale based on the kind of metal you're selling since such sales count as income.

The items that need to be filed include $1,000 worth of U.S. 90% silver dimes at a quarter or half dollars. Silver and gold bars that weigh one kilogram or more than 1,000 troy ounces must be filed. American Gold Eagle coin sales are not required to file the filing of Form 1099-B. All tax for each of these sales is due at the same time as your normal taxes on income are due.

Cost Basis of Physical Gold and Silver

The amount of taxes to be paid for selling precious metals is contingent upon the price of metals. If you buy the metals, you have a cost basis the same as the amount you paid to purchase the item. The IRS permits the addition of certain costs to the basis. This could reduce tax burdens at a later date. Certain costs, such as appraisal costs, can be added to the basis.

There are two distinct situations for calculating the cost basis for physical silver or gold. If you first receive the metals in exchange for a gift, the cost basis is equal to the worth of these metals at the date the gifter bought them. If at the time you are giving the gift, the price of these metals was lower than the value that the person giving you paid for them; the cost basis will be equivalent to the value of the market on the day you receive the present. For the second case, If you inherit silver or gold or silver, then the cost basis will be equivalent to the value of the market at the time of the death of the individual from whom the metals were inherited.

Nonphysical Gold Investments

Gold mining mutual funds, stocks, and ETFs for mining provide gold-related investments; however, they cannot invest in physical gold bullion. These investments generally move concerning the price of gold; however, they are also affected by borrowing and production costs. Alongside the ease of trading and lower costs, another benefit is that the gains made from investments held for more than a year are assessed as LTCGs.

ETNs that trade in gold are credit-worthy securities whose rate of return is tied to an underlying gold index. The gold ETN is not physically owned by gold; however, at the time of maturity, it yields an amount comparable to the value of a gold investment. Since ETNs are only secured by the company that issued them, in the event of an issuer's bankruptcy, investors will receive a low or no value from their investment. ETNs are traded as stocks and are eligible for the LTCG treatment.

Gold futures contracts allow you to buy or sell - at an agreed price, date, and time, a set quantity and quality of gold. Futures contracts permit investors to leverage their positions to ensure that even small variations in gold prices could result in large profits or losses. The most common method of purchasing gold contracts for futures is by buying gold futures ETFs or ETNs. To be tax-efficient, the gain or loss in a futures contract is considered to be 60% LTCG and 40 percent STCG, commonly referred to by the term "60/40. This results in a lower tax rate than the ordinary income tax rate but more over what is known as the LTCG rate.

Related Articles