Can You Claim Losses on Gold?
Precious metals are classified by the Internal Revenue Service (IRS) as capital assets, with investment profits subject to tax at either 0%, 15% or 20% depending on your income level.
Selling precious metals at less than what was paid can result in a capital loss, but these losses can be used to offset capital gains and ordinary income taxes.
Gold investments are a popular choice among those seeking to protect themselves against inflation and geopolitical risks, yet many investors remain unaware of its tax repercussions when selling precious metal holdings.
The Internal Revenue Service classifies gold as collectibles, meaning its taxes are higher than traditional financial investments. Anyone selling their coins or bars for profit will have to pay capital gains taxes upon sale.
Taxable capital gains on gold are calculated by subtracting its cost basis from its sales price, including both its original purchase price and any fees or expenses you incurred to store or sell it.
If you have been investing in gold for an extended period, you could qualify for reduced long-term capital gains rates. It is essential to maintain records of purchases and sales so you can accurately calculate your tax liability.
Gold is an ancient symbol of wealth and prosperity in many cultures worldwide, as well as being an invaluable investment asset. But investors should understand its tax ramifications before taking this route.
One of the easiest and most efficient ways to invest in gold is through bullion-backed exchange-traded funds (ETFs). These ETFs purchase large quantities of physical gold, store it, and then distribute shares back out to investors who invest. Each share price directly reflects gold’s market price.
Investors who purchase gold coins and bars will usually owe capital gains tax when selling them, however those holding onto their gold for longer may be able to avoid paying such taxes through lower long-term capital gains rates and offsetting gains with losses from other investments, lowering their overall tax liability.
Taxes on Investments
Gold investments can be purchased in numerous ways. Investors may invest directly in physical gold coins and bars or purchase exchange-traded funds that are structured as grantor trusts; gains on these ETF’s may be taxed as collectibles with gains subject to tax rates of 28% — higher than the 15% long-term capital gains (LTCG) tax rate applicable for most taxpayers.
Investors may purchase shares of precious metals companies that trade on public markets. Although the IRS will take its share from profits made from these stocks, investors may be able to reduce their tax bills by making long-term purchases of gold that take advantage of lower capital gains tax rates for extended periods. Furthermore, they can deduct costs associated with storage and maintenance from their taxable income; this deduction is known as their “cost basis.”
Taxes on Collectibles
One person’s trash may be another’s treasure in terms of collectibles, which are highly sought-after items for which people will pay large sums of money. Unfortunately, such objects come with tax consequences when sold for profit, donated to charity, or handed down from generation to generation.
Collectible metals such as gold coins will incur an increased long-term capital gains (LTCG) tax rate of 28% when sold at a profit, exceeding the standard long-term capital gains (LTCG) rate of 20% for investment assets.
To avoid higher taxation, one way is to invest in an ETF that does not hold physical gold but instead tracks its price – however these funds often have limited liquidity. Another option could be using 1031 exchange, which allows investors to move investments between assets without incurring tax on any recognized gains.