Tax Implications for Precious Metals

Trading gold, silver, or any other precious metals is often called an investment. As with other investments, there are naturally quite a few tax implications for your activities in this endeavor.

However, it is important to understand that precious metals have many idiosyncrasies concerning the tax considerations for their various transactions. So, this page is your guide to understanding what taxes you may owe when you buy or sell silver, gold, platinum, palladium, or copper.

How the IRS treats precious metals

The Internal Revenue Service considers your holdings in precious metals to be capital assets. In other words, they are tangible objects you own in hopes that they will yield revenue for you in the future. Specifically, the IRS classifies precious metals as collectibles, like art or antiques.

Capital gains tax

Because precious metals are capital assets, they are subject to capital gains taxes. However, the first thing to know about capital gains taxes is that they are only due in the event of a sale of your holdings. As long as you don’t transfer your precious metals to anyone else, you’re not on the hook for anything.

Capital gains taxes on all investments are subdivided into short-term or long-term, and the barrier between the two is one year. If you’ve owned your metals for less than a year, your investment will be taxed at the same graduated rate as the rest of your income.

If you’ve owned your metals for more than a year, however, you’ll be subject to a capital gains tax equivalent to your marginal tax rate – that is, the rate associated with your highest dollar. However, the capital gains tax rate for precious metals may rise only as high as 28%. So, if your marginal rate is above that threshold, you will pay less for your capital gains than you will on the most heavily taxed portion of your income.

How can I know how much tax I owe?

To be clear, you’ll only owe taxes if you sell your gold, silver, or other metals for a profit. Furthermore, you’ll only pay taxes on the profit, not the underlying cost of the metal.

In other words, you won’t be taxed on the amount that you paid to buy the metal in the first place. This amount, known as the cost basis, is the baseline for determining your taxable income concerning capital gains tax.

So, say you bought 10 ounces of gold at a price of $1,800 per ounce. Thus, your cost basis for this purchase is $18,000. However, let’s say that you sold this gold a year and a day later at a price of $2,000 per ounce. So, the sales price would be $20,000, yielding a profit for you of $2,000.

At that point, the capital gains tax you would owe would be on the $2,000 profit, not the entire $20,000 worth of gold. The exact rate you would pay would then depend on your income bracket.

What if I received the precious metals as a gift?

A coin, round, or bar of metal makes an awfully nice gift for someone, but there are still tax implications. In this case, the cost basis is the market value of the property on the day it was originally purchased. All things equal, it is how much the giver paid for it.

The only exception would be if the value of the metals had decreased in the interim between its purchase and gifting to you. In that case, the cost basis would be the market value of the metal at the time of the giving, not the purchase.

What if I received the precious metals as an inheritance?

Another way you might acquire gold, silver, or any other precious metals is via an inheritance.

The same rules apply in terms of capital gains tax on your inherited items as to your regular purchases and holdings. So long as you hold onto the gold and silver et al, you’ll not have to pay any tax. Furthermore, you won’t have to pay any taxes unless you sell the metals at a profit, and you’ll only be taxed on the profit itself.

Like other metals, what matters is the cost basis calculation for the metals. In this case, the cost basis is the market value of the gold or silver on the date that the person who gave you the metals passed away. It’s a bit macabre, but it’s the only way to ensure that you are starting from even, so to speak.

What if the value of my investment goes down?

Although gold, silver, and other precious metals are among the most reliable stores of value on the planet, the reality is that the price you can get for your metals can decrease from time to time. If you don’t sell, then it’s no problem. However, if you decide to move on from that particular investment, there are some tax implications.

The short answer is that since you pay taxes when you make money, it follows that you would not pay taxes when you don’t make money. In fact, the value of that loss can be used as an offset for some of your other taxable income. In other words, the taxman won’t add insult to injury by taxing you in a situation where you’re already losing money.

If you do encounter this situation, though, there may be some details and nuances about how and when you can apply for your tax offset. So, if you sell your gold or silver at a loss, make sure to find a good CPA or other tax professional to guide you on your return.

How to pay the taxes

The good news is that you don’t immediately have to send your tax liability to the IRS when you make a sale. It can wait until your annual income tax return. As a reminder, a return covers only the previous calendar year, so you wouldn’t need to file if you sold in January or February – those sales would be taxed on the next year’s return.

As is often the case with the IRS, there’s a form for paying taxes on your items. In fact, there are two. You first report the details of the sale on Form 8949, Sales and Other Dispositions of Capital Assets. Then, you summarize all of your capital asset transactions on Schedule D of your 1040.

Do I have to pay any taxes when I buy gold or silver?

Unfortunately, yes. Like any other transaction, you are on the hook for any regular sales tax that your home state charges.

There are only five states in the country that do not charge a statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, if you do happen to live in one of those areas, be aware that there may still be local sales taxes that apply. It’s probably a good idea to consult the tax laws in your state, county, and city/town before you make a purchase.