The IRS Classifies Gold and ETFs as Collectibles
The Internal Revenue Service considers gold and other precious metals to be “collectibles,” similar to other physical property like art, antiques, stamps, coins, wine, cars and rare comic books. This classification has significant tax implications for investors holding these assets.
| Types of Assets | Tax Classification |
|---|---|
| Gold and other precious metals | Collectibles |
| ETFs physically backed by precious metals | Collectibles |
The 28% Tax Rate on Long-term Capital Gains for Collectibles
Collectibles generally carry a 28% top federal tax rate on long-term capital gains.
- The 28% rate applies to profits on assets held for longer than one year.
- The rate is capped at the investor’s marginal income-tax rate.
- The tax rate on collectibles is different from the tax rate on stocks and other assets.
Why Gold ETFs Face a Higher Tax Rate
Gold ETFs are taxed as collectibles, similar to gold and other precious metals. Example: An investor in the 12% marginal income-tax bracket might pay a 12% tax rate on their long-term gold ETF profits.
Comparison to Stocks and Other Assets
Investors who hold stocks and other traditional financial assets generally pay one of three tax rates on their long-term capital gains: 0%, 15% or a maximum rate of 20%.
- The tax rate on stocks and other assets depends on the investor’s annual income.
- The tax rates on collectibles align with the seven marginal income-tax rates, capped at a 28% maximum.
- The tax rates on collectibles are different from the tax rates on stocks and other assets.
Example of Taxation on Gold ETFs
An investor who holds a gold ETF for over a year and sells it at a profit might be subject to the 28% tax rate on their long-term capital gains.
| Investor’s Income Bracket | Tax Rate on Long-term Capital Gains |
|---|---|
| 12% marginal income-tax bracket | 12% tax rate |
| 37% marginal income-tax bracket | 28% tax rate |
Conclusion
Investors holding gold and ETFs must be aware of the tax implications of these investments.
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