Can the IRS Take My Gold?
Gold has often been confiscated by governments and other groups throughout history, usually as temporary measures taken during economic or political crises. Gold can also be an excellent investment vehicle to diversify your portfolio.
Investors should keep in mind that any profits from selling precious metals must be reported to the IRS. With careful tax planning, there are ways to minimize capital gains taxes.
Capital Gains Taxes
Precious metals have gained increasing attention as an inflation hedge for investors’ portfolios, yet when it comes time to sell them a tax bill may arise as gold is considered an “asset”, meaning its tax rates can differ from other financial investments.
Gains from selling physical gold are taxed at a maximum collectible capital gains rate of 28%, much higher than the normal long-term capital gains (LTCG) tax rates of 15%-20% for high income taxpayers. By investing in an ETF that holds physical bullion instead, however, investors are protected from paying this higher collectibles capital gains rate since its assets are treated like other stock assets rather than physical goods.
Investors looking to lower their tax bills further can do so by placing their gold in an Individual Retirement Account (IRA). While the IRA rules prevent physical ownership of gold, an intermediary that fulfills trust requirements may hold it for a fee – as this also avoids paying 3.8% net investment income tax for taxpayers with MAGIs exceeding threshold.
Inheritance Taxes
When it comes to inheritance taxes, the IRS recognizes precious metals like gold and silver as collectibles. If you inherit such assets and decide to sell them later on, capital gains tax must be paid; it’s calculated by subtracting their sales price from their cost basis – this includes both original purchase price and all expenses incurred while acquiring and storing precious metals.
Although most states do not impose an inheritance tax, it’s still prudent to be mindful of this possibility if you plan to leave gold to your heirs. When making such plans, it would be beneficial to consult an estate attorney or precious metals expert so you can establish trusts or wills which avoid incurring inheritance taxes.
Inheritance taxes vary between states, so it’s a good idea to contact your state tax agency for more details. Any inherited gold that has been placed into an IRA account will be exempt from federal inheritance taxes.
Taxes on Investments
Investing in precious metals and then selling them for a profit requires paying capital gains tax to the IRS, with rates depending on both your marginal income tax rate and how long you’ve owned the asset – generally speaking, holding gold longer will result in reduced tax liabilities.
Physical gold and silver investments that fall under the IRS tax code as collectibles incur higher taxes at 28%. Therefore, it is essential that investors understand the tax rules surrounding physical investments in bullion investments as well as complying with annual reporting requirements.
When investing in precious metals, it is best to purchase from a reputable dealer who adheres to stringent federal and state guidelines regarding reporting sales and cost calculations. Usually, government regulators require any cash payments exceeding $10,000 be reported so they can monitor them for signs of money laundering or any illegal activities that might arise from these large transactions.
Taxes on Rental Properties
Gold bullion coins and bars sold for capital assets when sold are subject to capital gains tax at 28% for long-term gains, which is significantly higher than ordinary capital gains rates for most other investments. Investors may reduce their tax burden by purchasing exchange-traded funds that invest in physical precious metals rather than directly buying and selling physical gold directly.
Dealers of precious metals with transactions valued at at least $10,000 must report any transaction involving precious metals valued at $10k or greater to the IRS, such as sales of physical gold and silver as well as ETF shares that hold precious metals. The IRS will use this transaction information to assess if taxes should be withheld for this sale by using transaction data to analyze sellers.
Profits from selling gold bullion are calculated based on its cost basis, which equals what was paid for it. Investors may add other costs like appraisal fees. Furthermore, profits may be offset with capital losses from other collectibles they own.
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