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How do you avoid capital gains tax on precious metals?

Posted on April 6, 2023 by James Dillard

Keep your investments for at least a year. These are taxed at normal income, which means that your profits are not eligible for the special, lower capital gains tax brackets. To avoid this, sell your investments after at least one year if possible. Otherwise, you could expect higher income tax rates. Physical stocks of precious metals such as gold, silver, platinum, palladium, and titanium are considered fixed assets by the Internal Revenue Service (IRS), which are specifically classified as collectibles.

Stocks of these metals, regardless of their shape, such as investment coins, precious bars, rare coins or bars, are subject to capital gains tax. Capital gains tax is only due after the sale of such investments and if the investments have been held for more than one year. This applies not only to gold coins and bars, but also to most ETFs (Exchange Traded Funds), which are taxed at 28%. Many investors, including financial advisors, have problems owning these investments.

They mistakenly assume that because the gold ETF is traded like a stock, it is also taxed like a stock that has the long-term capital gains rate of 15 or 20%. Investors often perceive the high costs of owning gold as dealer premiums and storage fees for physical gold or as management fees and trading costs for gold funds. In reality, taxes can be a significant cost factor for owning gold and other precious metals. Thankfully, there’s a relatively easy way to minimize the tax impact of owning gold and other precious metals.

Individual investors may offer Sprott Physical Bullion Trusts a more favorable tax treatment than comparable ETFs. Since the trusts are based in Canada and are classified as Passive Foreign Investment Companies (PFIC), US private investors are entitled to the usual long-term capital gains rates when selling or redeeming their shares. Again, depending on income, these rates are 15 or 20% for units that were held for more than a year at the time of sale.

While no investor likes to fill out additional tax forms, the tax savings resulting from owning gold through one of the Sprott Physical Bullion Trusts and holding the annual elections may well be worthwhile. To learn more about Sprott Physical Bullion Trusts, ask your financial advisor or Sprott representative for more information. Royal Bank Plaza, South Tower 200 Bay Street, Suite 2600 Toronto, Ontario M5J 2J1 Canada. Stocks of precious metals such as gold, silver or platinum are considered capital assets, which is why capital gains may arise.

When it comes to tax purposes, the IRS classifies precious metals as collectibles, which is why they may be taxable at the maximum taxable capital gains rate of 28 percent. As mentioned above, selling precious metal coins, rounds, and bars can serve as an additional source of income for many customers. Therefore, in the eyes of the IRS, all profits made by a customer from selling their precious metals investments are considered taxable and therefore subject to some form of tax. This taxation is known as “capital gains tax.”

Therefore, “capital gains” refer to any gains that result from the sale or exchange of personal stocks or assets. In terms of precious metals, capital gains occur when a particular coin or piece of precious metal increases in value and is then sold at that higher price. In summary, capital gains are one of the main parts of a large transaction report that the IRS is looking for.

Disclosure: This is an independent review site. Nevertheless the owners of this website may earn commissions by referring visitors to various investment opportunities in order to meet the running costs of this website. The content on this website does not constitute financial advice. You are encouraged to talk to your financial advisor before making any investment decision.

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