What are the tax implications of buying and selling gold bullion?

February 04, 2015 by Dave Du Val, EA
three bars of gold

Hey Dave,

I am considering buying Gold Bullion. I am 68 and do not plan on using an IRA of any kind for this. What are the tax implications of buying gold or other precious metal bullion and "selling" the bullion at a later date? I would be buying by wire transfer and not by cash or check. I'm guessing that taxes may be due when I sell (or one of my heirs sells) and it might  be a capital gains tax rate on the "profit" if correct, what is that tax rate? And what about heirs selling in the future.

I would most probably buy USA gold bullion.

Robert

 

Robert,

Gold is considered a capital asset and is treated as a “collectible” similar to silver coins or even baseball cards. Therefore, you would have to hold the gold for more than one year in order to be taxed at the favorable long-term capital gain rates when you sell. Your cost would include what you paid, plus any commissions or other charges. You are correct that any gain is net gain, and that you are not taxed on the gain until you sell (assuming your heirs do not have to pay estate taxes on your estate). It really doesn't matter how you pay for the gold, as long as you keep a record of what you paid.

Currently, the long-term capital gains on collectables is a “maximum of 28%.” This means, for example, if you are in the 15% tax bracket, your gain on the gold would be taxed at 15%, but if you were in the 35% tax bracket, you would be taxed at 28%. The “normal” favorable long-term capital gain rates are 0, 15%, or 20% depending on your other income. The 20% rate is charged on taxpayers in the 39.6% bracket. The “normal” capital assets that these rates refer to are items such as stocks. There is also the new investment tax of 3.8% to consider. More information on that can be found here.

If you pass away before you sell and the gold is inherited by your heirs, their cost basis will be the fair market value of the gold on the date of your death. When they sell the gold it will receive long-term capital gains treatment regardless of how long you held it, or how long they have held it. As inherited property it receives long-term capital gain treatment.

Best wishes on your investments.

Deductibly yours,

Dave

 

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David E. Du Val, EA
Chief Compliance Officer for TRI Holdco

 

Dave Du Val, EA, is Chief Compliance Officer for TRI Holdco. Inc., the parent company of TaxAudit, and Centenal Tax Group. A nationally recognized speaker and educator, Dave is well known for his high energy and dynamic presentation style. He is a frequent and popular guest speaker for the California Society of Tax Consultants, the California Society of Enrolled Agents and the National Association of Tax Professionals. Dave frequently contributes tax tips and information to news publications, including US News and World Report, USA Today, and CPA Practice Advisor. Dave is an Enrolled Agent who has prepared thousands of returns during his career and has trained and mentored hundreds of tax professionals. He is a member of the National Association of Tax Professionals, the National Association of Enrolled Agents and the California Society of Enrolled Agents. Dave also holds a Master of Arts in Education and has been educating people since 1972. 


 

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