Precious metals provide an important hedge against portfolio risk, but they don’t come at a cost. Many investors believe that gold and silver are taxed the same as stocks and bonds, but the IRS classifies these assets differently.
When it comes to selling metals, it can have a significant impact on the profits you take home. In fact, the IRS classifies most precious metals as collectibles, so profits earned on these items can be taxed as high as 28%.
Here’s how much you can expect to pay based on your income level, how long you’ve held the investment, and its account type.
Precious metals are not taxed like stocks.
Gold and silver, like stocks, are not taxed. Capital gains on stocks are generally taxed at rates of 0%, 15%, or 20%, depending on your taxable income.
On the other hand, the IRS almost always taxes precious metals as collectibles. This means that profits are taxed at your marginal tax rate, with a top rate of 28%. However, keep in mind that if you sell your stock, you will only pay tax on capital gains.
That said, capital gains on both stocks and precious metals are taxed like ordinary income if held for less than one year.
What the IRS taxes as collectibles
According to IRS tax rules, collectibles include metals, coins, jewelry, and other items of tangible value, such as art and antiques. This means that most types and forms of precious metals are taxed at the same rate, including both silver, gold, platinum and palladium bars and coins.
However, some forms of precious metals are not considered collectibles, such as certain coins, some bullion in IRAs, and non-physically backed ETFs. These holdings have their own tax rules.
Why does the IRS tax precious metals as collectibles?
Generally, the U.S. government taxes precious metals more than it taxes investments such as stocks and bonds. According to Purba Mukherji, an economist at the University of Connecticut, this is by design: “The tax law is designed to encourage people to keep their savings in the form of U.S. dollars instead of holding potential rivals such as precious metals,” she says.
What tax rate do I pay on gold and silver profits?
The 28% collectibles tax rate is the maximum tax rate and not necessarily the tax rate you pay. If your ordinary income tax rate is lower than 28%, your precious metals profits will generally be taxed at that lower rate.
“For example, if a taxpayer’s marginal tax rate is 22%, they will pay taxes at that marginal rate,” says Elliott Bassin, an accountant, financial planner, and partner at Fiondella Milone & LaSaracina LLP.
For example, if you buy gold for $1,000 and then sell it for $2,000, your taxable gain will be $1,000. At a tax rate of 22%, you would pay $220 in federal capital gains taxes. At up to 28% collectibles rate, you’ll pay $280.
The exact amount of tax depends on your income, holding period, and whether additional taxes such as net investment income tax (NIIT) apply.
Who pays the 28% tax rate and when?
You will only pay the 28% tax rate if your ordinary income tax rate is higher than 28%. According to IRS guidelines, this generally applies only to single filers who earn more than $201,775 per year or married couples filing jointly who earn more than $403,555 per year.
Additionally, you only pay taxes on capital gains you realize. This means you only pay taxes on your profits if you actually sell your silver, gold, or other precious metals at a profit.
Who pays net investment income tax?
High-yielding investors may also be liable to pay 3.8% net investment income tax (NIIT) on their precious metal gains. This generally applies if your modified adjusted gross income exceeds $200,000 as an individual or $250,000 for a married couple filing jointly. In such cases, the gain on the sale of precious metals may result in additional tax being imposed on top of the existing 28% collectibles capital gains tax rate.
How does the IRS know if you’re selling gold?
The IRS may track sales of precious metals in several ways. Some precious metals dealers are required to file information returns with the IRS for certain transactions that meet certain reporting criteria. If you sell through a brokerage account, such as a gold or silver ETF, the transaction may also be reported on tax forms sent to both you and the IRS.
However, not all precious metal sales are automatically reported. Regardless of whether a transaction is reported by a dealer or a financial institution, taxpayers are responsible for accurately reporting their taxable gains on their federal income tax returns.
Comparison of short-term and long-term capital gains
The length of time you own precious metals can have a significant impact on your tax liability. The 28% collectibles tax rate only applies to long-term gains, i.e. metal gains held for more than one year.
If you sell gold, silver, or other precious metals after owning them for less than a year, the gain is considered short-term capital gain and is taxed as ordinary income.
For example, if you buy $1,000 worth of gold and sell it 10 years later for $2,000, you will have a long-term capital gain of $1,000. Because physical gold is generally treated as a collectible, profits from it are taxed at marginal tax rates of up to 28%.
If you are subject to the full 28% recovery rate, you may have to pay up to $280 in federal taxes on that $1,000 of gain. Investors in lower tax brackets may pay less.
This example does not take into account state taxes, transaction costs, or net investment income tax (NIIT) that may apply to some high-income investors.
Tax treatment of gold and silver ETFs
Gold and silver ETFs allow investors to trade precious metals on the stock market without physically handling coins or bars. The IRS treats sales of physically backed ETFs the same as sales of the metal itself. This means that the 28% collectibles capital gains interest rate cap still applies.
“Investors who think they’re avoiding payback interest by buying ETFs often don’t,” says Jeffrey Schmidt, a certified public accountant and financial educator who specializes in retirement and tax strategies. “Funds like GLD and SLV hold physical metals, so the IRS treats the sale of stock as a sale of the bullion itself.”
How is a Gold IRA taxed?
Gold IRAs generally follow the same tax rules as other self-directed IRAs. Because the precious metals are held in a tax-advantaged retirement account, investors typically do not pay capital gains taxes when they sell gold or silver within the account.
Instead, depending on the type of account, you will be taxed when you contribute funds to or withdraw money from your IRA. Contributions to a traditional gold IRA are tax-deductible and tax-deferred, but withdrawals in retirement are generally taxed as ordinary income. Roth gold IRAs are funded with after-tax dollars, but qualified withdrawals in retirement are generally tax-free.
As a result, standard IRA contribution limits, distribution rules, and penalties still apply, but investors may be able to avoid the 28% collectibles capital gains tax rate while the assets remain in the IRA.
Tax treatment of precious metal losses
Like other capital assets, losses on investment grade precious metals are generally tax deductible. Investors can use capital losses to offset capital gains from other investments, potentially reducing their overall tax bill.
For example, if you sell gold at a loss and earn profits from stocks, mutual funds, or other investments in the same year, your losses may help offset some or all of those gains. If your capital losses exceed your capital gains, you may be able to deduct a portion of your remaining losses from ordinary income and carry forward any unused losses to future tax years.
However, losses on items purchased primarily for personal use (such as gold jewelry, collectible coins, and other personal property) are generally not tax deductible.
Consumption tax on gold and silver purchases
There is no federal excise tax on precious metals such as gold and silver. Many states also offer full or partial sales tax exemptions for the purchase of precious metals. Rules vary by state, but these exemptions often apply to bullion coins, bars, and rounds that meet certain purity or purchase value requirements.
If your state imposes a sales tax on precious metals, the tax is typically collected at the time of purchase, increasing your upfront costs. This is separate from the capital gains tax you pay later if you sell the metal at a profit.
Before purchasing, please check your state’s current regulations or ask your dealer if sales tax applies to your transaction.
Capital Gains Tax Frequently Asked Questions
Do I always have to pay 28% tax on my gold profits?
no. Precious metal profits are taxed at marginal tax rates up to 28%.
Is gold subject to higher taxes than stocks?
Yes, gold is usually taxed at a higher rate than stocks. Capital gains on gold are taxed at a maximum of 28%, while capital gains on stocks are only subject to a maximum of 20%.
Is silver subject to the same taxes as gold?
Yes, the IRS taxes both silver and gold as collectibles.
Can I avoid capital gains tax on gold?
Holding precious metals in a gold IRA offers several tax benefits. Investors can also work with a financial planner to assist with time sales and optimize strategies such as loss recovery to reduce tax burden.
What is the six-year capital gains tax rule?
There are no general U.S. federal capital gains tax rules that apply after six years of ownership. For precious metals, the primary tax base is one year. Holdings sold for more than one year are subject to long-term capital gain treatment, while holdings sold within one year are taxed as short-term gains. The IRS typically taxes physical gold and silver as collectibles, with long-term gains taxed at marginal tax rates of up to 28%.
