Capital Gains and the Sale of Gold or other Precious Metals

One interesting item of news last week, was the price of gold rocketing to new levels.

Of course, as with almost all financial investments, buying and selling gold can have US tax implications.

In our brief article today, we’ll discuss the tax considerations when investing in gold or other precious metals.

To begin with, we’ll explain the ordinary approach for capital gains, which are subject to their own set of tax rules in the US. The US has two basic sets of rules, short term capital gains and long term capital gains.

Short term capital gains are taxed as ordinary income, whilst long term capital gains are taxed at (usually lower) capital gains tax rates.

What are Short Term Capital Gains? 

A short term capital gain or loss is calculated on the sale of an asset held for less than one year.  Its important to note that this doesn’t cover personal property, such as a home, but does cover investment assets such as stocks.

The US taxes short term capital gains at the taxpayer’s ordinary income tax bracket, which is dependent on your total income for the year.

For example, lets say a person had $110,000 of income, and fell into a 19% tax bracket. This person then bought stock in Air New Zealand, and sold it three months later for a $2000 NZD gain. This gain would be taxed at the 19% rate, as ordinary income.

Can I deduct short term losses?

Yes, you can indeed. In the case that you buy and sell an asset in less than 12 months, and you make a loss (ie sell for less than you purchased for), this loss can be used to offset:

-          Other short term gains

-          Long term gains

-          Up to $3000 of other income

What are Long Term Capital Gains?

As you might expect, a long term capital gain is calculated on the sale of an asset held for 12 months or greater.

Long term capital gains are subject to more preferential tax rates of 0%, 15% and 20%. Which bracket you fall into, depends on your overall income for the year. For 2024, these brackets were (for a single person):

-          Income up to $47,025 USD – 0% capital gains tax rate

-          Income up to $518,900 USD – 15% capital gains tax rate

-          Income over $518,900 USD – 20% capital gains tax rate

It is important to note, the above US capital gains tax brackets are based on the person’s overall taxable income for the year, not just the amount of capital gain. For example, if a person has $100,000 in wages, and makes a $45,000 long term capital gain, they would fall into the 15% bracket.

How does the US Tax the Sale of Gold and other Precious Metals?

Going back to the original discussion point, which is the sale of precious metals. The IRS treats these investments as “collectibles”, which are subject to their own tax rate.

Specifically, gains made on the sale of collectibles are set at a firm tax rate of 28%. With regards to short term gains, this can mean there is benefit for someone in a low tax bracket, selling within a year to take advantage of a lower ordinary income tax bracket. For all other long term holders however, a tax rate of 28% applies on any gains.

Summary

In summary, while investing in gold and other precious metals can be lucrative, it's important to understand the distinct U.S. tax implications.

Unlike typical investments, long-term gains on collectibles like gold are taxed at a higher flat rate of 28%, making tax planning essential for investors in these assets.

We do speak to many clients who, despite some obvious drawbacks, wish to invest in gold. We do work with specialist firms involved in the purchase and secure storage of gold, and of course always recommend clients obtain quality financial advice before making any investment.

At the US Tax Team New Zealand, we offer US tax specialist advice with our in-house US tax consultant – reach out to us today – info@usatax.nz.