Physical holdings in precious metals are capital assets. The IRS specifically categorizes gold and other precious metals as collectibles. Holdings in these metals, regardless of their form are subject to capital gains tax. However, the capital gains tax is only owed after the sale of such holdings.
While many financial securities are subject to short-term or long-term capital gains tax rates, the sale of physical precious metals is taxed a little differently. Short-term gains on precious metals are taxed using ordinary income rates that apply to other income, such as wages. Physical holdings sold after one year are subject to a capital gains tax equal to your marginal tax rate, up to a maximum of 28%. Even though the 28 percent collectibles capital gains tax rate is higher than the long-term capital gains tax rates for traditional capital assets, it is still a more favorable rate than short-term gains. This is especially true for higher income earning individuals that fall into the in the 32%, 35%, and 37% tax brackets as these individuals would still only have to pay 28% on their physical precious metals sales.
Tax liabilities on the sale of precious metals are not due at the time of sale. Instead, sales of physical precious metals need to be reported on Schedule D of Form 1040 on your tax return. However, sales of certain types of metal require Form 1099-B to be submitted to the IRS at the time of the sale.
The amount of tax owed on the sale of precious metals depends on the cost basis of the metals themselves. If you purchase the metals yourself, then the cost basis is equal to the amount paid for the metal. It’s also important to note that the IRS allows certain additions to the basis, such as the cost of appraisals.
If the precious metals are received via inheritance, then the cost basis is equal to the market value on the date of death of the person from whom you inherited the metals.
If the precious metals are received as a gift, the cost basis is the lesser of:
- The market value of the precious metals on the date that the gifter purchased them, or;
- The market value on the day that the precious metals were gifted.