Investments in precious metals, such as gold, silver and platinum, are similar to other investments in that your holdings are capital assets, according to the Internal Revenue Service. The money you make or lose is a capital gain or loss. However, some special rules apply when you figure tax on the sale of precious metals.
For tax purposes, the IRS classifies precious metals as collectibles even when they are bars or coins, where the value depends solely on the metal content and not on rarity or artistic merit. This rule may affect the tax you pay on the sale of precious metals. The maximum long-term capital gains tax rate for collectibles is 28 percent, instead of the 15 percent maximum rate that applies to most investments.
Gains and Losses
Whether or not a sale of precious metals creates a tax liability depends on whether you have a gain or loss. To determine gain or loss, first add the purchase price of the precious metal and other expenses incurred as part of the investment, such as dealer fees and storage costs. The result is called your tax basis or cost basis. Calculate the net proceeds of the sale by subtracting sales expenses from the gross proceeds of the sale. Subtract the tax basis from the net proceeds. A negative value as an answer indicates a capital loss. If your answer is positive, you have a taxable capital gain.
If your sale of precious metals results in a gain and you have owned the metal for one year or less, the gain is short-term. Short-term gains are taxed at the same rate as ordinary income. If you held the metal for more than one year, the gain is long-term, and the maximum tax rate is 28 percent. Short-term capital losses are used first to offset short-term capital gains. Likewise, long-term losses first offset long-term gains. Any net losses remaining may then be used to offset other income on your tax return.
The IRS prohibits investing in collectibles with tax-advantaged plans such as IRAs, but makes an exception for some types of precious metals, such as American Eagle gold and silver coins and bars, that meet purity standards. Because these investment plans exempt funds in the accounts from taxes, there is normally no tax liability for selling precious metals held in them. Any taxes that might eventually be levied will be due only when funds are withdrawn from the account.
- Gold image by Sergii Mogyla from Fotolia.com