In most cases, selling a capital investment requires you to report your gains or losses to the IRS for tax purposes. However, buying, selling and trading gold works a bit differently. While precious metal investing is a lucrative business that requires investors to pay taxes, some people might be surprised to know that not all gold sales are taxable.
Gold as a Collectible
Gold and other precious metals are classified as collectibles by the IRS, making them closer to artwork and antiques than stocks and bonds. This classification applies to gold bullion, even though its value depends on its metal content as well as its artistic merit and rarity. Since gold is considered a collectible, investors only have to pay taxes if they make a profit. If you sell gold that you’ve had for longer than a year, the profit counts as a long-term gain and is subject to a 28 percent tax rate instead of the 15 percent rate applied to most investments. Profits from the sale of gold that you’ve had for less than a year is a short-term gain and is taxed at the 15 percent rate.
To determine if your gold investment is taxable, you must first determine if your net proceeds after a sale are higher than the initial cost of the investment. For instance, if you were to sell gold bullion for $5,000 and pay a fee of $150, your net proceeds would equal $4,850. After you make that sale, your next step is to subtract your cost basis from the total. Your cost basis will be the initial cost of the investment. If you end up with a positive amount, your sale was profitable and therefore taxable. If the cost of your investment was higher than your net proceeds, the result is a capital loss that is not taxed.
Regardless of whether or not you made a profit by selling gold, you will still have to report your gains and losses to the IRS. This is done using a 1040 form, Schedule D. Losses can be used as a tax deduction.
Gold ETFs
Exchange-traded funds or ETFs that engage in precious metal investing are treated like an investment in the metal itself. A gold ETF passes its tax liability to its shareholders, which means it is up to shareholders to report the short-term or long-term gain or loss whenever the ETF sells its physical gold. The gold ETF will send a 1040 form to its shareholders so they can report any gains and losses from these sales.