The Internal Revenue Service (IRS) classifies gold and other precious metals as collectibles that are taxed at a long-term capital gains rate of 28%. Earnings on most other assets held for more than a year are subject to long-term capital gains rates of 15 or 20%. The IRS taxes capital gains on gold the same way it does on any other investment asset. However, if you have purchased physical gold, you are likely to owe a higher tax rate of 28% as a collector's item.
Avoid investing in physical metal and you can minimize your capital gains taxes at the ordinary rate of long-term capital gains. And when possible, hold your gold investments for at least one year before selling them to avoid higher income tax rates. Long-term earnings on ingots are taxed at the ordinary income tax rate, up to a maximum rate of 28%. Short-term earnings on ingots, like other investments, are taxed as ordinary income.
An asset must be held for more than one year for gains or losses to be long-term. Report earnings from selling gold using Form 1040, Appendix D. If you owned gold for more than one year, this is a long-term capital gain and is subject to the 28 percent collector capital gains tax rate. If you owned gold for a year or less, you have a short-term gain.
Short-term earnings are taxed at ordinary income tax rates that apply to other income, such as wages. You can report any loss from the sale of gold in Schedule D and use it as a tax deduction. In general, you have to pay taxes when you sell gold if you make a profit. According to the IRS, precious metals such as gold and silver are considered capital assets and financial gains from their sale are considered taxable income.
Alternatively, a physical gold CEF is a direct investment in gold, but it has the benefit of taxes on LTCG rates. While secondary investments in gold, such as gold mining stocks, mutual funds, ETFs or ETNs, may generate lower returns before taxes, after-tax returns may be more attractive. The profit margins of gold bars are usually lower than those of country-specific gold coins, but both are collectibles for tax purposes. 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.
Gold is often taxed differently than other investments, and tax rules vary depending on which of the many different ways to invest in gold you choose. And since gold is an investment asset, when you sell your gold and make a profit, it's taxed as capital gains. Investors with a Roth IRA pay income tax in advance on a purchase, but all future growth is tax-free; investors with a pre-tax IRA pay their usual types of income taxes when they withdraw money in retirement. In other words, gold coins are taxed based on their total value, rather than just weighing the amount of gold they are made of.
You only pay taxes when you sell your gold for cash, not when you buy more gold with that money.