[Last updated May 2015]
See our section here for a brief summary of US taxation of physical precious metals. See US capital gains tax for more information on this specific tax. Also, see our section on general strategies for US citizens
State sales tax rates and rules in relation to physical precious metals vary and there is very little conformity. Fortunately much information is readily found online. Remember, you pay sales tax in the state in which the sale takes place. This is why dealers tend to concentrate in certain states and not others.
Disposals (sale) of physical gold and silver are taxed as a collectible under US federal tax law. Physical gold and silver is considered the same as artwork, wine, and classic cars. Thus the Internal Revenue Service (IRS) levies a higher rate of Capital Gain tax (CGT) up to a substantial 28%. In addition, state taxes can push this to almost 40%. This is high compared to stocks, bonds and other financial investments.
In this section
US capital gains and liability
The general concept of capital gains and CGT is essentially the same everywhere, but there can be important differences that a good tax accountant should alert you too. For example, the IRS definition of a capital asset is quite broad compared to other tax authorities. The disposal of items including personal property such as boats, cars, furnishings, and real estate as well as more traditional investments such as stocks and bonds will all trigger a capital gain (or loss) calculation in the US.
On the other hand, your annual CGT liability is a simple subtraction of total capital gains from total capital losses as there are very few allowances, reliefs or exemptions to worry about. The IRS also kindly allows tax filers to deduct a negative CGT liability (overall capital loss) from taxable income or carry that benefit over to prior or future years. Make sure you use your capital losses effectively and keep your taxable income as low as possible to avoid the maximum rate on capital gains. Note however the IRS will allow you to deduct capital losses only on investment property, not property that was for personal use.
Important idiosyncrasies of US federal capital gains/loss and CGT liability rules on physical precious metals are:
- Metals bought and sold within a one-year period are assessed at the ordinary income tax rate;
- Physical precious metals can be gifted within generous limits to family members, charities and trusts without triggering any rules;
- There is scope for ‘like-for-like’ tax-free exchanging of metals in one form to another form. For example, exchange 100oz silver bar for ten 10oz silver bars;
- There can be complex interactions with your state and federal taxes best left to a good tax accountant;
- There are many ways your basis can be favourably adjusted to control your capital gains.
Managing your basis
One area where US federal tax law can be quite complex (and different from other countries) is in determining and adjusting your basis. IRS capital gains (or losses) are calculated as follows:
When you buy, are gifted, inherit or otherwise take legal possession of physical precious metals your basis will be either the price you paid or the fair market value at that time. If you exchange under like-for-like rules the basis in the original item will transfer to the exchanged item. Note that if you do not have any proof of what your basis is you could be liable for CGT on the entire value of the sale, i.e. the IRS considers your basis as zero. Make sure you have receipts or legal records for all your metals. (Note: if you find and declare lost or abandoned treasure your basis will be used to assess income tax not CGT).
According to this IRS document wash sale rules don’t apply to “collectibles”. (Wash sales are when an investor sells an investment at a loss and quickly buys it back for tax avoidance purposes. Typically this is not allowed). So if you bought precious metals at higher prices you may want to consider selling and immediately re-buying to avail of the capital loss.
Re-basing your physical precious metal investments is an important consideration. There are many IRS rules in relation to estimating and adjusting the basis of a capital asset. This is one area where we strongly suggest getting professional tax advice.
US citizens living abroad must file IRS tax returns. Generally speaking, taxes paid abroad can be netted off what would be owed to the IRS. For example, any CGT paid abroad is applied as a tax credit on your IRS return. Of course since CGT is zero/low in many countries you will still be liable for IRS CGT. We discuss the reporting of foreign held (and foreign bought and sold) precious metals in our section on strategies for US citizens.
Within the US, gold and silver bullion dealers must record customer details on Form 8300 for total combined cash purchases over $10,000 in their tax year (typically calendar year). Credit card, bank wire and other forms of non-cash payment are not reportable.
The selling by customers to dealers of certain types and quantities of physical precious metals is reportable on Form 1099-B. The table below outlines these rules (as of time of writing). Understandability many people don’t like giving out personal details. Anonymity is important, especially for those storing metals personally. However the strategic benefits of buying certain items so as to later avoid filling out 1099-B seem minimal to us. The IRS already has plenty of your personal information and 1099-B rules will likely change in the future. In any case, you are still liable to pay up to 28% CGT on the sale of all physical precious metals whether they are reportable on 1099-B or not.
|Not reportable on a Form 1099-B||Reportable on Form 1099-B|
Coin oriented self-directed IRA
Individuals with US taxable income can set up a Self-directed Individual Retirement Account (SDIRA) and fund it with precious metals. IRAs are tax efficient shelters designed to minimize tax. Investment gains inside the shelter are CGT free. At present, the rules for withdrawing from IRAs between the ages of 60 and 70 years are very tax favourable.
Precious metals can be held within a SDIRA but only on certain conditions. Bullion (bars) must be held by an approved custodian, while certain coins may be held personally without restriction. Unfortunately using a custodian means the metals will be recorded as being owned by the custodian regardless of where or how they are stored. Therefore, to avoid the loss of direct title and ownership we recommend only keeping coins within your SDIRA and storing them privately yourself.
US law says certain coins shall not be deemed “collectibles” for the purposes of putting inside a SDIRA and can be stored privately without a custodian. The types of coins you can hold this way include:
Gold: American Eagle coins, U.S. Buffalo Bullion coins, Canadian Maple Leaf coins, Austrian Philharmonic coins, Australian Kangaroo/Nugget coins.
Silver: American Eagle coins, Canadian Maple Leaf coins, Austrian Vienna Philharmonic coins, Australian Kookaburra coins, Mexican Libertad coins.
Source: Independentlivingbullion. (2013). Precious metal investment guide. [Online] Available from http://www.independentlivingbullion.com/pdf/IRA_acceptable_metals.pdf (accessed 13 August 2013)