Gold is considered a tangible asset and a form of investment. When you buy gold, whether in the form of bullion, coins, certificates, or jewelry, you may need to pay taxes on it. The amount of tax depends on how and where you purchased the gold, how long you held it for, and whether you sold it for a profit. Understanding the tax implications can help you make informed investment decisions when buying gold.
Is gold purchase taxable?
In most cases, buying gold is considered a taxable event. However, some specific circumstances may allow you to avoid or defer taxes on your gold purchase. Here are the key factors that determine if and when tax is due on gold purchases:
Type of gold
Physical gold – Bullion, bars, and coins are subject to sales tax when you first buy them. Jewelry may or may not incur sales tax depending on location.
Gold certificates or ETFs – No sales tax applies as these are paper assets. However, capital gains tax may apply when you sell them at a profit.
Where you buy gold
Different states have different sales tax rules on buying gold. Some states exempt coins and bullion from sales tax but apply it to jewelry. Others apply sales tax irrespective of the type of gold purchased. If buying online from another state, use tax may apply if the seller does not collect sales tax.
Holding period
For physical gold, if you hold it for personal use or as a collectible, taxes may be deferred. But if held as an investment, capital gains tax applies when you sell it at a profit. Long-term capital gains tax rates are lower compared to short-term.
Selling for profit
When you sell gold at a higher price than your purchase price, the profit is subject to capital gains tax. This applies to physical gold held as investment as well as gold certificates.
Sales tax on buying gold
Sales tax applies to most physical gold purchases and ranges from 0% to over 10% depending on your state. Here are some key aspects about sales tax on gold transactions:
Bullion
Most states charge full sales tax when buying gold bullion bars and coins. Exceptions are states like Delaware, Montana, New Hampshire, Oregon that have no sales tax. Alaska, Maryland, and Virginia exempt bullion but tax rare/collectible coins.
Jewelry
Some states tax gold jewelry while others exempt small purchases below a threshold. Exemptions also apply for estate jewelry. Luxury tax may apply in some locations for expensive jewelry items.
Coins
Sales tax on gold coins depends on whether they are considered bullion or collectibles in your state. Bullion coins face sales tax while collectible coins may be exempt.
Certificates
Paper assets like gold certificates and ETFs do not attract any sales tax when purchased. Only capital gains tax applies when you redeem them at profit.
Online purchases
For online purchases from out-of-state dealers, you may need to self-report use tax if the seller does not collect sales tax. Thresholds for use tax reporting vary across states.
Capital gains tax on selling gold
When you sell gold at a higher price than your purchase value, the profit is taxable as a capital gain. Here are the capital gains tax implications:
Short term vs long term
If held for 12 months or less before selling – short term capital gain, taxed as ordinary income. If held for over 12 months – long term capital gain, lower tax rates apply.
Collectibles rate
Physical gold is considered a collectible. Applicable capital gains tax rate can go up to 28% for short term gains and up to 28% for long term.
Exemptions
No capital gains tax if sold at a loss. Also exempt if sold for under $600 profit in a year. Certain states like Montana and New Hampshire do not tax capital gains.
Reporting requirements
You must report capital gains from gold sales on IRS Form 1040 Schedule D. If over $600 profit, Form 1099-B must also be filed.
Record keeping
Keep receipts of gold purchases and sales to accurately calculate cost basis and capital gains. Proper documentation is key to claim exemptions.
Tax filing for gold investors
If you buy and sell gold for investment purposes, here are some tips for your tax paperwork:
- Keep detailed records of all purchase and sale transactions
- Save invoices, receipts, and other proofs of your cost basis
- Note physical details like weight, purity, ID marks for each item bought/sold
- Track holding periods accurately for each gold investment
- Consult a tax professional to identify capital vs ordinary gains
- Carefully calculate capital gains/losses for each sale
- File all required forms – 1040 Schedule D, 1099-B, 8949
- Pay capital gains taxes on profits from gold sales
- Claim capital losses on gold sales against other income
Proper documentation can help you maximize after-tax returns on your gold investments and avoid issues during a tax audit.
Tax-advantaged ways to own gold
Certain approaches allow you to own gold while deferring or reducing the tax impact:
Gold IRA
Holding physical gold in a self-directed IRA allows tax-deferred growth. No taxes on capital gains until you take distributions at retirement.
Gold ETF in tax-deferred account
Purchasing a gold ETF within an IRA, 401k, or other tax-deferred retirement account can also provide tax benefits.
Gifting
You can gift gold to relatives or others with no gift-tax implications up to the annual exclusion amount.
Donating to charity
Donating physical gold allows you to claim a tax deduction for the fair market value while avoiding capital gains tax.
Inheriting
Inheritors enjoy a step-up in cost basis to market value at the time of the giver’s death, eliminating capital gains tax exposure.
Conclusion
While buying gold does incur sales tax and capital gains tax when sold at a profit, strategic tax planning can help investors maximize returns. Maintaining detailed records is also essential to accurately calculate tax liability. Consulting a tax advisor can provide guidance on how to optimize your gold investments within IRS rules and regulations. The key is being aware of the tax implications before making any gold transactions.
