If you’re new to buying precious metals then you may be wondering what your tax situation is when it comes to selling the bullion for a profit.
There are individual state tax laws, as well as federal laws to abide by. This means that you need to talk to your accountant or a tax advisor once you’ve bought your gold bars from this website.
The IRS treats precious metals as capital assets
As a result of this, gold, silver, platinum and palladium may attract capital gains when they’re sold at a profit. The IRS also views precious metals as a collectible, so they can have tax levied on their profits up to the maximum of the 28% capital gains tax (CGT).
The taxes aren’t calculated and applied until the metal is actually sold, because the capital gain hasn’t been realized until then. So, say you buy 10 ounces of gold at $1,100 per ounce and place it in a depository for several years. While it’s in storage it appreciates in value to $1,300 per ounce. You decide to sell it at this price, which realizes (as in, makes real) the capital gain of $2,000.
Do I owe tax on this $2,000 profit?
You need to calculate the original cost of the metals, which in this case was $11,000, and then the selling price, which was $13,000. This makes you a profit of $2,000. Your federal tax bracket will determine whether you owe tax on some or all of this profit, which is why you need to speak to an advisor. There are also several special conditions that you need to factor in.
If you’ve inherited the metal things may change
If you’ve inherited the metals then a different calculation method is used to work out the cost basis – the cost basis in this case is the market value of the metal on the day of your benefactor’s death.
If you’ve been gifted the metals
The cost basis is calculated by the market value on the day the person giving you the metals bought them – not the day you received them. Sometimes the market value is less than the amount the person actually paid, in which case the cost basis is worked out from a fair market price from that day.
In short, though, you probably will owe tax on some or all of the profit.
What rates might I have to pay?
This depends a lot on your usual income tax rate and the length of time you’ve had the metals before selling them. You already know that the IRS sees precious metals as collectibles, so you’ll possibly have to pay the 28% CGT. It also matters whether you’ve held the metals for less or more than a year as less that a year counts as a short-term gain, which is taxed differently.
When is the tax due?
You report your capital gains from your metals in your yearly tax return and then pay any tax owed in due course.
What if I sell at a loss?
Hopefully you won’t, but if you do, then you have a capital loss, not a gain. You can offset capital gains from other sources against this loss either in the same tax year or in future tax years or you can offset it against your ordinary income (with some restrictions). Ideally, you need to speak to your tax advisor for the most up-to-date advice.