Are Gold Coins Tax Free
Are gold coins tax free? Gold coins like the American Gold Eagle have long been popular with investors looking to diversify their portfolios. These coins contain a specific amount of gold and can increase in value as the price of gold rises in global markets. But what are the tax implications when you sell your gold coins? Gold investors often wonder – are Gold Eagles and other coins taxed when sold? The answer is yes. However, the amount of tax varies depending on your tax bracket and filing status.
Capital Gains Tax on Gold Coins
In the United States, assets you buy and sell for a profit are subject to capital gains tax. Items such as homes, stocks and bonds, and gold coins are considered assets, so any profit you make when selling your coins is taxed. The amount of taxes you owe the Internal Revenue Service (IRS) when you sell gold coins depends on numerous factors, including how long you hold them.
Short-Term Capital Gains
If you buy gold coins and sell them in a year or less, the profits are considered short-term capital gains. These profits are subject to taxation at your tax rate, determined by your income, filing status, and more. For example, if you bought a Gold American Eagle for $2,000 and sold it for $2,100, the $100 profit would be taxed at your standard rate. Therefore, the tax on gold coins sold in less than a year can reach rates as high as 37%, which is higher than rates you would receive if you held onto the gold coins for at least a year before selling.
Long-Term Capital Gains
If you held gold coins for over a year before selling, the profits are considered long-term capital gains. The long-term capital gains tax rates for most assets, such as stocks or bonds, are either 0%, 15%, or 20%, depending on your income level. The amount you’ll pay depends on your taxable income and filing status.
For single filers with taxable income under $41,675 in 2023, the capital gains rate is 0%, meaning you owe no taxes on any profits. Single filers with income from $41,676 to $459,750 will pay a 15% rate. And single filers earning more than $459,751 will pay 20% of their capital gains. The income thresholds are higher for married couples filing jointly and qualifying surviving spouses.
While the maximum capital gains tax rate is 20% in most cases, there are certain exceptions in which capital gains are taxed at higher rates. This includes a 28% tax rate on capital gains for selling collectibles, and the IRS considers coins collectibles.
Are Gold Coins Considered Collectibles?
The tax code defines coins as collectibles regarding taxes on Individual Retirement Accounts (IRAs). An exception is made for certain gold coins, like the American Gold Eagle. These specific gold coins are not treated as collectibles in IRAs based on Section 408(m)(3) of the Internal Revenue Code.
However, this exception does not apply when calculating capital gains taxes owed from selling gold coins outside of an IRA. Section 1(h) of the tax code sets the capital gains tax rate on collectibles at 28% of profits. It clarifies that the definition of collectibles used here does include gold coins, regardless of the exception made for IRAs.
So, gold coins like the American Gold Eagle are exempt from collectible treatment within IRAs. However, they are still considered collectibles when calculating capital gains taxes owed from selling them outside of retirement accounts. Therefore, if you’re asking are gold coins tax free, the answer is no. Profits from selling gold coins are taxed at the 28% collectible rate. This includes all gold coins, such as the American Gold Eagle, Canadian Maple Leaf, South African Krugerrand, vintage gold coins, and others.
How are Gains Calculated When You Sell Gold Coins?
After you sell gold coins for a profit, you must determine the amount of capital gains you acquired. Determine capital gains by subtracting the cost basis of acquiring and holding the coins from the selling price. The cost basis is the price you purchased the coins for plus any fees you incurred while owning the asset. Therefore, if you paid to have your gold coins appraised or stored, these costs are added to the cost basis. The purchase price also includes any premiums you paid to buy the coins, not just the spot price at the time of purchase.
Are There Exceptions?
There are a few potential exceptions where the exchange of gold coins may not trigger capital gains tax, such as inherited or gifted gold coins. Gold coins that are inherited do not incur capital gains tax. The cost basis increases or decreases to market value as of the date of death. Additionally, you can gift up to $17,000 in gold coins per year to each recipient without filing a gift tax return. Over the lifetime exclusion amount, gift tax may apply.
Receiving gold coins as a gift or inheritance can have significant tax implications if you later decide to sell those coins. Your cost basis in inherited coins is generally the fair market value of the coins on the date of the original owner’s death.
For example, if you inherited gold coins valued at $5,000 at the time of the previous owner’s passing, your cost basis would be $5,000. If you later sell the coins for $6,000, you will have a capital gain of $1,000 (the $6,000 sale price minus your $5,000 cost basis). This $1,000 capital gain would be subject to capital gains tax rates based on your income and filing status.
The same principles apply to coins received as gifts, except you take over the donor’s cost basis and you’ll owe capital gains taxes on any profits when sold. Tracking the cost basis for inherited or gifted coins is key to calculating taxes owed.
Selling Gold Coins for a Loss
Selling gold coins and bullion at a profit triggers capital gains tax. However, if you sell gold coins at a loss, you can claim a capital loss deduction on your tax return to offset capital gains or reduce your taxable income by up to $3,000.
For example, let’s say you purchased some gold coins for $2,000 last year. This year, you sell those coins for $1,800, realizing a capital loss of $200. You can use that $200 capital loss to offset capital gains from other investments. If you don’t have any other capital gains to offset, you can deduct up to $3,000 of capital losses against your ordinary income when filing taxes. Any remaining capital losses above $3,000 can be carried forward to future tax years.
The key is keeping thorough records of your cost basis and sale price on assets like gold coins to calculate and claim capital losses come tax time. Consult a tax professional to ensure you properly account for capital losses on investments.
Gold coins provide alternative investment options beyond stocks and bonds but bring tax implications that you must handle accordingly. We are not tax consultants, and this article is not meant to be tax or investment advice. Keeping detailed records of your coin purchases and sales, including receipts, invoices, and market values on dates of transactions, is crucial for accurate tax reporting. If you fail to report capital gains on gold coins, you could face penalties and interest on unpaid taxes due. Consult a knowledgeable tax professional to ensure you report properly when buying and selling gold coins.