US capital gains tax

The US Internal Revenue Service (IRS) levies up to 28% tax on capital gains from precious metal investments. State and local taxes can increase this further to almost 40%.

Physical gold and silver in any form is considered the same as artwork, wine, and classic cars, that is, it’s a “collectible”. Hence the higher top rate of 28% rather than the normal top rate of 23.8%. (The normal top rate is made up of 20% plus an additional 3.8% to fund the Affordable Care Act).

The chart below from the Tax Foundation is based on the normal capital gains rates, but it gives a pretty good indication which US states are best for precious metal investors to pay their taxes in (hint: the greener the better).

Combined State & Federal normal Capital Gains rate (top bracket)

Combined State & Federal normal Capital Gains rate (top bracket)


(click to enlarge)
 

The bottom line is US residents pay probably the highest overall Capital Gains tax (CGT) rate on precious metal investments in the world. Moreover this situation is unlikely to get any better any time soon. For more details see US capital gains and liability.
 

No indexing

But wait, it gets worse.

In 1981 President Reagan introduced personal income tax indexing in the US and it’s still in effect today. This means tax brackets automatically move up in line with general inflation. So higher pay awarded to counteract inflation doesn’t mean workers fall into higher tax brackets – the brackets move up too.

Sadly capital gains enjoy no such protection. So during periods of high inflation people end up owing taxes on inflated gains, sometimes even if they have suffered real losses. Research by the Tax Foundation shows an awful lot of capital gains tax is owed on this illusory “gain”. For more details on this see Inflation – the biggest tax of all.
 

How to avoid CGT

US citizens have several options to legally minimize CGT on their precious metal investments. They can put precious metals into a self-directed IRA, re-locate to a lower tax state, or take their precious metals abroad and hold them “directly” as per FATCA rules. And finally, there is the nuclear option of obtaining a foreign passport and revoking US citizenship.

For most people the most realistic option(s) are the first two. With a self-directed IRA we recommend only keeping coins and storing them privately yourself. See here for more details.

Relocating to a different state is a very popular option. For example, a Massachusetts resident could escape that state’s 12% levy on gains on collectibles by selling her precious metals after she moves to Florida. Puerto Rico offers interesting tax incentives (namely Act 20 and Act 22) and is another option for US citizens seeking to legally avoid CGT.

For more on the benefits of moving your metals outside the US, a discussion of FATCA reporting rules, as well as obtaining a new citizenship see our section on strategies for US citizens

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2 comments on “US capital gains tax
  1. rmg says:

    Hello. Any info on CGT for Puerto Rico related to precious metals? Thanks in advance.

    • PMT says:

      Hi rmg,

      The only info we have is what’s widely available on the Web. Namely, that legal tax residents are not subject to US federal CGT and are exempt from local wealth taxes too. Apparently this applies to “collectibles”, ie. gold, too. If you find out more details please do let us know!

Comments or questions are most welcome