Precious metals can be an important hedge against risk in your portfolio, but they don’t come without a cost. Many investors believe that gold and silver are taxed the same way as stocks and bonds, but the IRS classifies these assets differently.
When it comes to selling metals, this can have a serious impact on how much profit you take home. In fact, because the IRS classifies most precious metals as collectibles, any profits you make on these items may be taxed at up to 28%.
Here’s how much you can expect to pay based on your income level, how long you’ve held the investment, and what type of account it’s in.
Precious metals are not taxed like stocks
Gold and silver are not taxed like stocks. Capital gains on stocks are typically taxed at a rate of 0%, 15% or 20% depending on your taxable income.
On the other hand, the IRS taxes precious metals as collectibles in most cases. This means that gains are taxed at your marginal tax rate, with a maximum of 28%. But remember: You only pay tax on capital gains when you sell your stake.
That said, capital gains on both stocks and precious metals are taxed like ordinary income if you’ve owned them for a year or less.
What does the IRS tax as collectibles
According to IRS tax rules, collectibles include metals, coins, gems, and other tangible items of value, such as art or antiques. This means that most types and types of precious metals are taxed at the same rate, including both bars and coins of silver, gold, platinum, and palladium.
However, some forms of precious metals are not considered collectible, including some coins, some bullion in IRAs, and non-physically backed ETFs. These holdings have their own tax rules.
Why does the IRS tax precious metals as collectibles?
In general, the US government taxes precious metals more than it taxes investments such as stocks and bonds. According to Connecticut College economist Purba Mukherjee, this is intentional: “The tax code is designed to encourage people to hold their savings in US dollars rather than holding them in potential rivals like precious metals,” she says.
What rate will you pay tax on receipt of gold and silver?
The 28% collectible tax rate is a maximum rate, not necessarily the rate you will pay. If your ordinary income tax rate is less than 28%, your precious metals gains are generally taxed at that lower rate.
“For example, if a taxpayer’s marginal tax rate is 22%, they will pay taxes at their marginal rate,” says Eliot Basin, accountant, financial planner and partner at Fiondella, Milone & Lasarcina LLP.
For example, if you bought gold for $1,000 and later sold it for $2,000, your taxable gain would be $1,000. At a 22% tax rate, you’ll pay $220 in federal capital gains taxes. At the maximum 28% collectible rate, you will owe $280.
Your exact tax bill depends on your income, holding period and whether any additional taxes, such as net investment income tax (NIIT), apply.
Who pays the 28% tax rate, and when?
You’ll only pay the 28% rate if your ordinary income tax rate would otherwise be higher than 28%. According to IRS guidelines, this generally applies to single earners earning more than $201,775 per year, or married couples earning more than $403,550 per year.
Additionally, you only pay taxes on the capital gains realized, meaning you pay taxes on your earnings only when you actually sell your silver, gold, or other precious metals at a profit.
Who pays net investment income tax?
High-earning investors may also have to pay a 3.8% net investment income tax (NIIT) on precious metals gains. This generally applies if your modified adjusted gross income exceeds $200,000 as an individual or $250,000 as a married couple filing jointly. In these cases, the gain from selling your precious metals may trigger additional taxes on top of the existing 28% taxable capital gains rate.
How will the IRS know if you sell gold?
The IRS can learn about precious metal sales in several ways. Some precious metals dealers are required to file information returns with the IRS for certain transactions that meet specific reporting thresholds. If you sell through a brokerage account, such as a gold or silver ETF, the transaction may also be reported on tax forms sent to both you and the IRS.
However, not every precious metal sale is automatically reported. Regardless of whether the transaction is reported by a dealer or financial institution, taxpayers are responsible for accurately reporting any taxable gains on their federal income tax returns.
short term vs long term capital gains
How long you’ve owned precious metals can have a significant impact on your tax bill. The 28% collectible tax rate applies only to long-term gains, meaning gains on metals you’ve held for more than a year.
If you sell gold, silver or other precious metals after holding them for a year or less, any gain is considered short-term capital gain and is taxed as ordinary income.
For example, if you bought gold for $1,000 and sold it for $2,000 after 10 years, you would have a long-term capital gain of $1,000. Because physical gold is generally considered collectible, that gain will be taxed at your marginal tax rate at a maximum rate of 28%.
If you were subject to the full 28% collection rate, you might have to pay up to $280 in federal taxes on that $1,000 of profit. Investors in lower tax brackets may pay less.
This example does not account for state taxes, transaction costs or the net investment income tax (NIIT), which may apply to some high-income investors.
Tax treatment of gold and silver ETFs
Gold and silver ETFs let investors trade precious metals in the stock market, without the need to physically handle coins or bars. The IRS treats selling a physically-backed ETF the same as selling metals, meaning the 28% collectible capital-gains rate limitation still applies.
“Investors who think they’ve bypassed the collectible rate by buying ETFs usually haven’t,” says Jeffrey Schmidt, CPA and financial educator specializing in retirement and tax strategy. “Funds like GLD and SLV hold the physical metal, so the IRS treats selling your shares the same as selling bullion.”
How is a gold IRA taxed?
Gold IRAs generally follow the same tax rules as other self-directed IRAs. Because precious metals are held inside a tax-advantaged retirement account, investors typically do not pay capital gains taxes when gold or silver is sold within the account.
Instead, taxation occurs when money is contributed to or withdrawn from an IRA, depending on the account type. Contributions to a traditional gold IRA may be tax deductible and tax deferred, while withdrawals in retirement are typically taxed as ordinary income. Roth Gold IRAs are funded with after-tax dollars, but qualified withdrawals in retirement are typically tax free.
As a result, investors can potentially avoid the 28% collectible capital gains tax rate while the assets remain inside the IRA, although standard IRA contribution limits, distribution rules, and penalties still apply.
Tax treatment of precious metals losses
Like other capital assets, losses on investment-grade precious metals are generally tax deductible. Investors can use capital losses to offset capital gains from other investments, potentially reducing their overall tax liability.
For example, if you sell gold at a loss and also make gains from stocks, mutual funds or other investments during the same year, the loss can help offset some or all of those gains. If your capital loss exceeds your capital gain, you can deduct a portion of the remaining loss from ordinary income and carry forward any unused loss to future tax years.
However, losses on items purchased primarily for personal use – such as gold jewelry, collectible coins or other personal property – are generally not tax deductible.
Sales tax on purchase of gold and silver
There is no federal sales tax on precious metals like gold and silver. Many states also offer full or partial sales tax exemptions on precious metal purchases. Although rules vary by state, these exemptions often apply to bullion coins, bars and rounds that meet certain purity or purchase-price requirements.
If your state imposes a sales tax on precious metals, the tax is usually collected at the time of purchase and increases your upfront cost. This is separate from any capital gains tax you may have to pay later if you sell your metals for a profit.
Before making a purchase, check the current regulations in your state or ask your dealer if sales tax applies to your transaction.
Capital Gains Tax FAQs
Do I always have to pay 28% tax on gold received?
No, gains on precious metals are taxed at your marginal tax rate with a cap of 28%.
Is gold taxed more than stocks?
Yes, gold is generally taxed higher than stocks. Capital gains tax on gold can be up to 28%, while capital gains tax on stocks only goes up to 20%.
Is silver taxed like gold?
Yes, the IRS taxes both silver and gold as collectibles.
Can I avoid capital gains tax on gold?
Holding precious metals in a gold IRA offers some tax benefits. Investors can also work with a financial planner to help them time sales and optimize strategies such as tax-loss harvesting to reduce their tax burden.
What is the 6-year rule for capital gains tax?
There are no general US federal capital gains tax rules that apply after six years of ownership. For precious metals, the main tax threshold is one year: holdings sold after more than one year qualify for long-term capital gains treatment, while holdings sold after one year or less are taxed as short-term gains. The IRS generally taxes physical gold and silver as collectibles, with long-term gains taxed at your marginal tax rate up to a maximum of 28%.
