Gold ETFs make buying, selling and trading the precious metal as easy as trading stock shares. However, the tax ramifications of generating profits from a gold ETF are significantly different from the capital gains tax rates when investing in stocks and other securities. With a gold ETF your gains could be taxed at either the collectibles tax rate or as if you were trading futures, depending on the holdings of the specific ETF.
Capital Gains Taxes
The American Taxpayer Relief Act of 2012 made changes starting in 2013 to income tax and capital gains tax rates that had been in effect since 2003. A new income tax rate of 39.6 percent was added above the 35 percent bracket as the top tax bracket for incomes over $400,000 if single, $450,000 if filing jointly. A 20 percent long-term capital gains tax rate was added to the previous zero and 15 percent rates. Investors in the new highest income tax bracket will also pay the new top capital gains tax rate. Short-term capital gains are taxed at an investor's regular income tax bracket.
According to the ETF Database website, 5 of the 15 listed gold ETFs back the fund shares by owning gold bullion. For these ETFs, capital gains are treated the same as owning gold directly and gold is taxed as a collectible. Short-term gains from a bullion ETF will be taxed at your regular marginal tax rate. Long-term gains are taxed at your regular rate or 28 percent if you are in a higher than 28 percent tax bracket. The cutoff for short-term capital gains with all type of investments is one year.
Futures Derived ETFs
Four of the gold ETFs use gold futures contracts to track the price of the metal. Your gains from one of these funds follow the futures tax rules. All gains are taxed as if 60 percent of the gain was long-term and 40 percent was short-term. Investors in the top tax bracket would pay a blended tax rate of 27.84 percent. At the former top brackets of 35 and 20 percent, the blended rate is 23 percent. A futures holding gold ETF will also follow the end-of-year market-to-market rule. If you own one of these ETFs at the end of the year you will receive a K-1 form listing your gains for the year. These gains must be reported on your tax return.
The remaining six gold ETFs are actually exchange-traded notes. An ETN does not hold any securities, instead the issuing financial institution guarantees the value of the shares. ETN gains are taxed like other investment types such as stocks and bonds. The tax rate on ETN shares owned for one year or less is your regular, marginal tax rate. If you hold the shares for longer than a year before selling, the gains are taxed a the long-term capital gains tax rate for your income tax bracket.
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