How Precious Metals Are Taxed

Gold, silver, platinum, and other precious metals are taxed as collectibles in the United States, facing a federal capital-gains rate of up to 28%—significantly higher than stocks—regardless of holding period. Physical bullion, numismatic coins, and ETFs face different reporting rules, and dealers have specific reporting thresholds for large transactions.

The 28% Collectibles Rate: Why Higher Than Stocks?

Long-term capital gains on stocks and bonds are taxed at the federal rate of 0%, 15%, or 20%, depending on income bracket. Precious metals face a flat 28% federal rate, set by Section 1202 and extended by the Revenue Reconciliation Act of 1993.

The theory behind the higher rate was to discourage speculative hoarding of commodities while still allowing capital-gains treatment (more favorable than ordinary income rates up to 37%). In practice, the 28% rate makes long-term bullion investing tax-inefficient compared to equity investing, even for a long multi-decade holding period.

An investor in the 24% ordinary-income bracket buying stocks gets taxed at 15% on long-term gains (a 9-percentage-point advantage). The same investor buying gold gets taxed at 28% (a 4-percentage-point disadvantage relative to ordinary income, and a 13-percentage-point disadvantage relative to stocks).

Physical Bullion vs. ETFs: Reporting Differences

Physical gold and silver (bars, ingots, rounds) sold directly to a dealer or another individual must be reported by the seller on Form 8949 and Schedule D attached to the Form 1040. The seller is responsible for calculating cost basis and reporting the transaction.

Dealers themselves have minimal reporting burden on small transactions. However, dealers purchasing bullion must file IRS Form 8300 if the total purchase price exceeds $10,000 in a single transaction. This creates an indirect reporting trail: if you sell 50 ounces of gold to a dealer for $100,000+, the dealer reports the purchase; your corresponding Form 8949 may be cross-checked.

ETFs like GLD (SPDR Gold Shares) or SLV (iShares Silver Trust) are simpler: the fund custodian issues a Form 1099-B on sale, and the investor reports on Schedule D like any stock. Brokerage platforms track cost basis automatically. The tax rate remains 28%, but compliance is routine.

Cost Basis and the First-In-First-Out Rule

Calculating cost basis for physical bullion is the investor’s responsibility. The IRS allows three methods:

1. FIFO (First-In-First-Out): Oldest purchases are presumed sold first. Most commonly used and requires minimal record-keeping.
2. LIFO (Last-In-First-Out): Newest purchases sold first; can minimize tax if recent purchases are higher cost.
3. Specific identification: Investor designates which coins/bars are sold. Requires detailed records and intent statement to the seller.

ETF investors get the benefit of their broker tracking this; redemptions are straightforward. For physical metals, poor record-keeping is a common tax-compliance problem: storing bars purchased over years without clear purchase dates makes future gains calculation a nightmare.

Investors buying bullion should record purchase date, weight, purity, and price paid for every acquisition. A single spreadsheet shared with a tax preparer prevents costly errors at filing time.

Holding Period: No Benefit Like Stocks

Unlike stocks, where long-term holding (over one year) qualifies for lower 15% or 20% rates, gold and silver held for a decade face the same 28% rate as bullion held for one month.

This removes a major tax incentive for long-term investing that equity portfolios enjoy. An investor buying gold at $2,000/oz and watching it rise to $2,500 over 10 years realizes a $500 gain per ounce. The 28% tax takes $140, leaving a $360 after-tax gain (7.2% after-tax return, compounded over 10 years). A similar stock investment with 15% taxation would net $425 after tax (8.5% after-tax return).

Over very long time horizons, this differential becomes material, tilting tax-conscious portfolios toward equities and away from bullion despite bullion’s diversification benefits.

Numismatic and Proof Coins: Ambiguous Treatment

Rare or “numismatic” coins (those with collectible or historical value beyond metal content) may be treated as collectibles under IRC Section 408, or as “items of personal use” (potentially excluded from capital-gains taxation altogether if held as collectibles rather than investments).

The line is blurred. A 1-ounce American Gold Eagle bullion coin is clearly a precious-metal investment taxed at 28%. A 1933 Double Eagle or a certified rare coin graded by a third party may qualify for lower tax treatment if its value derives from rarity and numismatic appeal, not spot metal price.

The IRS has never fully clarified this boundary, creating ambiguity for collectors and speculators. Most tax professionals conservatively assume 28% for any purchase of coins or bars marketed as bullion, even if numismatic value is present. An investor holding rare coins should document the collector’s intent and consult a tax advisor specializing in numismatics before claiming preferential treatment.

1031 Like-Kind Exchange: A Tool for Deferral

Under Section 1031 of the Internal Revenue Code, investors can exchange one investment property for another “like-kind” without triggering an immediate tax event—deferring the capital-gains tax until a future sale.

Precious metals historically qualified for 1031 treatment: trading 100 ounces of gold for 100 ounces of platinum, or swapping one collectible coin for another, could defer gains. However, the Tax Cuts and Jobs Act of 2017 limited like-kind exchanges to real property only, effective 2018 onwards—excluding precious metals, stocks, and other personal property.

Prior to 2018, a sophisticated bullion investor could strategically swap into different metals or higher-grade coins to optimize portfolio composition while deferring taxes. This strategy is no longer available for new exchanges.

Dealer Reporting and Privacy

Bullion dealers in the United States are not required to report every sale on a 1099. However, they are required to report purchases of bullion exceeding certain thresholds:

• Gold: Over $20,000 and 1,000 ounces combined.
• Silver: Over $20,000 and 5,000 ounces combined.
• Platinum: Over $20,000 and 25 ounces combined.

This creates an asymmetry: a $50,000 purchase of gold bars is reported; a $50,000 sale of the same bars months later by the investor is not reported by the dealer. The investor must self-report the transaction on Schedule D.

Sophisticated dealers track customer sales volume and may flag unusual patterns, but they are not obligated to report routine secondary sales to the IRS. Still, investors should assume that large cumulative transactions may be visible to tax authorities and maintain meticulous records.

State and Local Taxes

Most states do not impose separate capital-gains taxes on metal sales; federal tax dominates. However, a small number of states (California, New York, Washington, D.C.) impose state-level income taxes that apply to capital gains on any asset, including metals. New York, for instance, adds 8.82% top marginal state tax on long-term gains, making total federal + state rates exceed 36% for high earners.

Additionally, some states distinguish between “bullion” (taxable) and “collectible coins” (potentially untaxed), creating state-level confusion paralleling the federal ambiguity. Investors in high-tax states should consult a state tax professional.

Tax-Loss Harvesting and Wash Sales

Investors holding losing bullion positions can harvest the loss to offset other capital gains, reducing overall tax liability. If an investor bought 10 ounces at $2,000/oz. and gold falls to $1,800/oz., selling at a loss allows claiming a $2,000 deduction.

However, the IRS wash-sale rule (IRC Section 1091) prevents repurchasing the same security within 30 days before or after the sale. For bullion, the rule is more lenient than for stocks: buying a different form of the same metal (e.g., selling bars and buying coins, or selling standard ingots and buying proof coins) may not trigger the wash-sale rule, since the IRS definition of “substantially identical” is narrower for commodities.

Still, the safest approach is to wait 31 days before repurchasing if tax-loss harvesting is the intent.

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