This is called capital gains tax. And since gold is an investment asset, when you sell your gold and make a profit, it's taxed as capital gains. However, depending on how you've held your gold, you'll have to pay taxes at the ordinary capital gains rate or at an overall rate of 28%. The after-tax annualized return on gold coins is the lowest, approximately one percentage point lower than that of the gold investment fund, which receives the LTCG treatment.
If you sell gold and reinvest all of the proceeds from the sale in buying or building a home, the capital gains you earn are allowed as a tax exemption under Section 54F. Buying physical gold coins, bars or ETFs involves direct exposure to gold, but the tax treatment of collectibles imposes a much higher tax rate. Roosevelt signed Executive Order 6102 in 1933, making it illegal to own more than a small amount of gold coins and ingots. In the case of brokerage accounts, an investment in gold mutual funds is more likely to offer a higher after-tax return than gold coins or a gold futures ETF.
Many investors prefer to own physical gold and silver rather than exchange-traded funds (ETFs) that invest in these precious metals. Sell any form of precious metal at a profit and the profits will be taxed at a federal rate of 28% or less. The restriction was intended to reduce gold hoarding, which, according to the gold monetary standard, was believed to be holding back economic growth, and lasted more than 40 years before disappearing in 1975. It's also important to note the differences in after-tax returns between the types of gold investments held in a brokerage account. Under certain circumstances, the dealer must file a Form 1099-B to the IRS to declare profits paid to a non-corporate seller of precious metals.
Lucas is considering the same gold investment options as Emma and has the same plans to sell and distribute profits. With a little planning, investors can preserve more of their return on gold by investing in gold that receives the LTCG treatment or investing in an IRA. Gold exchange-traded bonds (ETN) are debt securities in which the rate of return is linked to an underlying gold index. The annual pre-tax return of 12% of gold over the past decade has fallen to less than 10% after taxes, but if investment in gold had been classified as a capital asset and taxed at a capital gains rate of 15%, the after-tax return would have been nearly 11%.
The after-tax return on gold held as a long-term investment depends, among other things, on whether profits are subject to tax treatment on long-term capital gains or are subject to a higher maximum rate of collectibles.)