Gold and precious metal investments have often been considered a “safe” investment during times of economic instability. Unfortunately, the IRS has ruled privately that capital gains from the sale of precious metals in exchange-traded funds do not receive the same favorable treatment as other long term investments.
Investors of exchange traded funds that include precious metal investments do not qualify for the 15% tax rate on long term capital gains (losses). Instead, the top tax rate of 28% is applied to gains (losses) from the sale of exchange traded funds that invest in metals provided the fund owned the metal for more than one year and the investor owned fund share(s) for over a year. The 28% tax rate is used because the fund’s investors are deemed to own a share of the metal and the gain (loss) is therefore treated as coming from the sale of a collectible.
The rule does not apply in the case of an IRA where the precious metal investment is held by an independent trustee. The IRS will not treat the IRA as owning a share of the fund’s metal and the sale will not be subject to the higher gain rate.
Non-IRA investors should consider the effect of the higher tax rate when determining their overall portfolio to maximize after tax gains.