Investors who have been enjoying the returns on their gold investments may be in for a surprise when it comes time to pay taxes. Gold exchange-traded funds (ETFs) are classified as “collectibles” by the Internal Revenue Service, which means they are subject to a higher tax rate on long-term capital gains compared to traditional assets like stocks and real estate.
The IRS considers gold and other precious metals to be collectibles, similar to physical property such as art, antiques, stamps, coins, wine, cars, and rare comic books. This classification also applies to ETFs that are physically backed by precious metals. As a result, investors in popular gold funds like SPDR Gold Shares (GLD), iShares Gold Trust (IAU), and abrdn Physical Gold Shares ETF (SGOL) may face a 28% top tax rate on their long-term capital gains.
According to tax experts, the collectibles capital gains tax rate applies to ETFs structured as trusts, treating them the same as an investment in the metal itself. This means that investors in these gold ETFs could be hit with a higher tax bill than they anticipated.
Gold prices have been soaring in recent months, with spot gold prices reaching an all-time high above $3,500 per ounce. This marks a significant increase from roughly $2,200 to $2,300 a year ago. The surge in gold prices has been driven by factors such as trade tensions and economic uncertainty, leading investors to flock to the precious metal as a safe haven asset.
When it comes to long-term capital gains, investors in traditional financial assets like stocks and stock funds typically pay tax rates of 0%, 15%, or a maximum of 20%, depending on their annual income. However, collectibles are subject to different tax rates, with a maximum of 28% on long-term capital gains. This aligns with the seven marginal income tax rates, ranging from 10% to 37%.
In addition to federal taxes, taxpayers may also owe a 3.8% net investment income tax or state and local taxes on their profits. It’s important for investors to be aware of these tax implications when considering gold investments and consult with a financial advisor for personalized advice.
