I bought gold bullion in 2008 and sold it in 2011. I had a gain of $10,000. Will I have to pay any tax on that? I am in the 15 percent tax bracket.
Congratulations on your good fortune.
Long-term capital gains are gains from selling property that you held for at least one year. In 2011 or 2012, if you are in the 10 or 15% tax brackets, any long-term capital gains are tax-free because they are taxed at a rate of 0%. So had your gain come in the stock market, you wouldn’t have to pay any tax on your profit.
Unfortunately, there are special tax rates for gain on “collectibles.” Collectibles include stamps, coins, artwork, Scotch whiskey and any type of gems or metal. Even though gains from this category are considered “capital,” any long-term gains are still taxed at ordinary tax rates. In your situation, at the 15 percent rate, the gain would be subject to $1,500 in federal income tax. If you were in the 28 percent bracket, you would have had to pay tax at a 28% rate, or $2,800.
There is one bit of relief for the very affluent: If you were fortunate enough to have made $171,851 last year ($209,251 if you are married), the tax rate on your collectibles gain would be limited to 28 percent rather than your higher marginal ordinary rate of 33 or 35%.
While it’s hard to think of copper ingots and tin as collectibles, the rules apply to all types of metal that you either take physical custody of or have warehouse receipts for. There was a bill in Congress in 2003 to treat gold, silver, and platinum the same as stocks, but the bill went nowhere, and there are no plans to make a change.
It hardly seems fair that a trader in copper pays more than someone speculating in grains, foreign currency, or oil. But that has been the law since 1981.
It gets worse. Let’s say that instead of a $10,000 long-term gain, you had a $10,000 long-term loss on your gold investment. Like any other capital loss, unless you had other offsetting capital gains, you would only be able to deduct $3,000 of the loss this year, and $3,000 every year until the loss was used up. So it would take 4 years for you to be able to fully deduct your losses.
Like other investments, if you had held the gold for less than a year, the loss would have been deductible or any income would be taxed at ordinary income tax rates.
Different rules apply to financial contracts traded on an established exchange. And, while trading metals in your retirement account may not be specifically prohibited, but it will result in a tax disaster. In both cases, the rules are extremely complicated. Seek specific tax advice before you get into a situation like that.
Before you decide to buy metal or other collectibles, be sure to take into account these less favorable tax rates on collectibles. If you need help, ask before you invest.
