Capital Gains Tax and Precious Metals
June 12, 2012
Do I have to pay capital gains tax if the value of the precious metals I am storing increases?
No. Although your precious metals may be appreciating rapidly, capital gains tax does not apply until you realize the gain by selling or exchanging your metals.
Do I have to pay tax if I sell my gold or silver?
It depends. Generally you will owe tax if you have a realized and recognized gain on the sale of your precious metals. To determine whether you have a gain, you must first identify your basis in the precious metals.
- if you bought the metals, your basis is your original cost of the metals
- if you received the metals as a gift, your basis is the fair market value of your metals at the date of the donor’s original purchase, unless fair market value is less than the donor paid, then the basis becomes the fair market value at the time of the gift.
- if you received the metals as an inheritance, your basis is the fair market value of the metals on the date of death of the person who left them to you
If you sell the precious metals for more than your basis, you have realized a gain in the amount of the difference. Unless you have used a technique to defer your gain or you have certain capital losses to offset it, the gain will likely be recognized and you will owe capital gains tax.
What tax rate applies if I have a taxable gain from the sale of my precious metals?
Gain from the sale of precious metals that are held for 1 year or less is a short-term capital gain and is taxed at your ordinary income tax rate. If you’ve held your metals for over 1 year, you instead have a collectibles gain, a form of long-term capital gain. Collectibles gain is taxed at a maximum rate of 28% in 2012.
Why doesn’t the standard long-term capital gains rate of 15% apply to precious metals that I have held for more than 1 year?
Physical precious metals are in a special tax category, designated in the Internal Revenue Code as collectibles. The 15% (in 2012) capital gains rate does not apply to collectibles. However, the 28% (in 2012) collectibles rate is a maximum and your rate may be lower, depending on your ordinary income tax rate.
Do I pay my capital gains or collectibles tax at the time of the sale?
No. You calculate and pay any capital or collectibles gain tax with your normal income tax filings, annually for most individuals.
What happens if I sell my precious metals at a loss?
A capital loss can help to reduce your tax bill. Depending on how long you own the precious metals before selling, you may have either a short-term or long-term capital loss. You can use your capital losses to:
- Offset (reduce) capital gains from sales of collectibles or other capital assets in the same tax year.
- Offset up to $3,000 of ordinary income from the same tax year.
- Offset capital gains and ordinary income in future years or prior years, subject to some limitations.