The World of Taxes

Gold ETF Taxed As Collectibles, Sellers Facing Tax Surprises At 28% Capital-Gains Rate

JUNE 3, 2013 •

Investors who sell shares in precious metal exchange-traded funds will be in for an unfriendly surprise:  much higher capital-gains tax.

Profits from investments in ETFs that back their shares with physical holdings of precious metals face taxes as high as 28 percent for long term capital gains. A rate the U.S. Internal Revenue Service applies to items it considers “collectibles,” such as coins, art, silver and gold. Long-term gains from stocks and bonds, including equity and fixed-income ETFs, are taxed at a maximum 20 percent.

“There are tax surprises waiting for uninformed investors and advisors alike.” Said Kevin Smith of Smith Wealth Management located in Dunedin, Florida

The shares in SPDR Gold Trust, the largest gold ETF, with $45.7 billion in assets, have dropped 23 percent since October 1, 2012 after more than doubling in preceding five years. The ETF fell 2.18 percent yesterday. Moody’s Investors Service said U.S. policy makers must address debt woes to avoid a credit downgrade.

Total assets in the Gold Trust have declined this year as sellers including billionaire George Soros forced the fund to redeem shares.

Many will face higher Taxes because they chose or were advised to hold precious metal ETF inside their taxable investment accounts.

Reduce the Bite

Investors who chose to purchase these specially taxed ETF could reduce the bite by holding them in Tax Deferred Accounts such as IRA’s, 401k’s, 403b’s or Roths.

Currently the top capital-gains tax rate begins at $400,000 for single filers and $450,000 for married couples. Individuals earning more than $200,000, or $250,000 for couples, are subject to an additional 3.8 percent investment income tax related to the 2010 health-care law.

The bottom line:  top wage earners could have face taxes of 31.8 percent on precious metal ETFs.