AssetPreserver News

If you own a gold or silver ETF and sell it, the tax consequences may be higher than you think.

Gold and silver are considered collectibles by the IRS which are taxed at a maximum rate of 28% rather than long-term capital gains rate. This includes gold and silver ETFs, bullion, and coins (except certain U.S. issued ones). When the assets are held less than a year, the gains are taxed as ordinary income which can be up to 35%.

Precious metals ETFs are organized as grantor trusts which means the owner has undivided interests in the metal owned by the fund. Check the website of the ETF on how to calculate the gain or loss when the ETF sells metal to pay for expenses.

If the ETF uses futures or derivative contracts to track performance the collectibles tax rule does not apply.

Investors are not allowed to own collectibles in IRA or other self-directed retirement accounts (401Ks included).  When gold and silver are purchased for such accounts, the cost of buying the collectible is treated as an owner distribution which is included in gross income and taxed as ordinary income. There may be a 10% penalty if the owner is under 59 1/2 years old.

Fortunately, and so far, the rules do not apply to gold or silver ETFs in retirement accounts. The only exception would be if the ETF liquidated and distributed the metal to the shareholders.

Ask your tax advisor how these rules fit into your situation.