For tax purposes, selling gold is much like selling other capital assets in that you end up with a capital gain or loss. The Internal Revenue Service treats investments in gold and other precious metals a bit differently than it does investments such as stocks and bonds. The difference is important because it might affect how much tax you pay when selling gold.
The IRS classifies precious metals, including gold, as collectibles, like art and antiques. This applies to gold bullion coins and bars even though their value depends only on the metal content and not on rarity or artistic merit. You pay taxes on selling gold only if you make a profit. A long-term gain on collectibles is subject to a 28 percent tax rate, though, instead of the 15 percent rate that applies to most investments.
To find out if you have to pay taxes on a sale of gold, you must determine if you made a profit or lost money. Start by subtracting transaction costs from the sale price to find your net proceeds. If you sell the gold for $6,000 and pay fees of $150, your net proceeds equal $5,850. Subtract your cost basis from the net proceeds. Cost basis is your total investment and includes the purchase price and expenses such as dealer’s commissions. For example, if you paid $5,000 to buy the gold and paid a dealer a $150 fee, your cost basis is $5,150. Subtracting the cost basis from the net proceeds gives you a gain of $700. When the cost basis is less than the net proceeds from selling the gold, you will get a positive amount that is the capital gain. If the cost basis is more than the net proceeds, the result will be a negative number and represents a capital loss.
Report gains from selling gold using Form 1040, Schedule D. If you owned the gold for more than one year, it is a long-term capital gain and subject to the 28 percent collectibles capital gains tax rate. If you owned the gold for one year or less, you have a short-term gain. Short-term gains are taxed at the ordinary income tax rates that apply to other income such as wages. You can report any loss from selling gold on Schedule D and use it as a tax deduction.
Exchange-traded funds that invest in physical gold and other precious metals are treated the same way as an investment in the metal itself. Like conventional mutual funds, gold ETFs pass tax liability to shareholders. This means that when a gold ETF sells some of the gold it holds, you have a short-term or long-term gain or loss. Gains are subject to the same tax rates that apply when you sell physical gold. The ETF will send you a 1099 form stating sales so you can report gains and losses.
- coins image by Stepanov from Fotolia.com