How Are Capital Gains on Precious Metals Taxed?

When you sell precious metals like gold or silver for a profit, the gain is subject to capital gains tax. The tax rules for these assets differ from those for more common investments like stocks and bonds. Understanding these specific tax regulations is necessary to accurately calculate your liability and determine the net return on your investment.

Defining Precious Metals as Collectibles for Tax Purposes

The basis of precious metal taxation is their classification by the IRS as “collectibles.” This category also includes items like art, antiques, and rare stamps. This classification applies to metals held in various forms, including bullion coins, bars, and rounds made of gold, silver, platinum, and palladium.

This tax treatment is specific to the physical ownership of the metals. The rules can differ for investments that provide exposure to precious metals without direct ownership, such as shares in certain precious metal Exchange-Traded Funds (ETFs). If you physically possess the gold or have it stored in a depository in your name, you own a collectible, which subjects any gains to a specific tax rate structure.

Calculating Your Capital Gain or Loss

Before determining the tax, you must first calculate your capital gain or loss. To do this, you subtract the asset’s cost basis from the sale proceeds. The result is your capital gain if positive, or a capital loss if negative.

The sale proceeds are the gross amount of money you received from the buyer. The cost basis is the original purchase price of the precious metal plus any additional costs to acquire it. These costs can include dealer premiums, shipping and handling fees, insurance costs during transit, and any assay fees paid to verify the metal’s purity.

Retaining all receipts and documentation related to the purchase and associated costs is important. These documents substantiate your cost basis. Without them, it can be challenging to prove your initial costs to the IRS, which could result in a higher taxable gain.

For example, you purchased a one-ounce gold bar for $1,900. You also paid a $50 dealer premium, $25 for insured shipping, and a $10 transaction fee. Your total cost basis would be $1,985. If you later sell that gold bar for $2,200, your capital gain would be $215, which is the amount you must report.

Determining the Applicable Tax Rate

After calculating your capital gain, you must determine the applicable tax rate. The rate depends on how long you held the precious metal, which is categorized as either short-term or long-term based on a one-year threshold.

If you hold the precious metal for one year or less, the gain is a short-term capital gain. Short-term gains are taxed at your ordinary income tax rates, which are the same rates that apply to your wages. These rates can range from 10% to 37%, depending on your total taxable income and filing status.

If you hold the asset for more than one year, the profit is a long-term capital gain. Unlike long-term gains from assets like stocks, which are taxed at 0%, 15%, or 20%, long-term gains on collectibles are taxed at a maximum federal rate of 28%. If your ordinary income tax bracket is lower than 28%, your gain is taxed at your ordinary rate. For those in higher tax brackets, the rate is capped at 28%.

Reporting the Sale on Your Tax Return

You must report the transaction to the IRS on your annual tax return using specific forms for capital asset sales. The primary form for this is Form 8949, “Sales and Other Dispositions of Capital Assets.” On this form, you will detail each sale, including a description of the property, acquisition and sale dates, sale proceeds, and your cost basis.

Because precious metals are collectibles, you must enter the code “C” in column (f) of Form 8949. After completing the form, you transfer the totals to Schedule D, “Capital Gains and Losses.” The net gain or loss calculated on Schedule D is then carried over to your main tax form, Form 1040. Even if you do not receive a Form 1099-B from the dealer who purchased your metals, you are still required to report the sale.