Gold prices have surged to record heights, trading at around $3,549 per ounce as of Wednesday morning. That blockbuster growth would be a 42% jump from this time last year. Investors and collectors are looking closely at this evolving market. This change brings the tax consequences of holding and later selling gold into sharp focus.
With soaring geopolitical tensions, unprecedented trade disputes, and rising worries about U.S. debt, investors consider gold a haven that always serves as the ultimate “fear hedge.” Jon Ulin, a financial advisor, noted the current atmosphere surrounding gold, stating, “With two wars ongoing, trade tensions, U.S. debt concerns and fears over [Federal Reserve] independence, gold’s traditional ‘fear hedge’ role remains strong.”
The appeal of gold as a collectible goes beyond just its appearance. It delivers billions in financial returns for the country if we know where and how to invest. Today, September 2024, you could purchase a one-ounce Costco gold bar for $2,679. Using today’s spot price as a baseline, this means this buy has already given you an unrealized gain of $870. This impressive increase is indicative of the high return one can earn by investing in gold bars while the market is still on the upswing.
As collector’s are often unaware of, there are tax implications that come with gold sales. Unlike stocks or real estate, which benefit from preferential tax rates capped at 20%, collectibles are taxed at ordinary income rates when sold. The collectibles tax rate is as high as 28%, based on the taxpayer’s income level/ bracket. If you realize the profit from selling gold within a year of purchasing it, the value will be subject to taxation as ordinary income. There’s no ceiling on the tax rate you’ll pay.
Long-term gold investors benefit from some key benefits. As with stocks, if you hold gold for over one year, you will receive a long-term capital gain. This significant appreciation could be taxed at lower capital gains tax rates. High earners need to be on guard against other taxes that will target them. America’s 3.8% net investment income tax doesn’t bite until your modified adjusted gross income exceeds $200,000 for a single filer. For married couples filing jointly, the threshold is $500,000.
Tax implications vary by state as well. Other states such as Florida and Texas don’t have an income tax. In fact, this scenario would be hugely advantageous to gold farmers operating in those areas. California and New York already have double digit income tax rates. This would have a serious impact on the profitability of selling gold in those states.
As the price of gold keeps going up, purchasers usually think about exactly what their prospects for reselling will be. Ulin suggests that “most buyers will likely melt the bar down for resale, so whether it’s still in its original Costco packaging with the certificate doesn’t make a huge difference.” This glimpse into the mind of gold sellers reveals that usefulness typically takes precedence over collector’s worth when considering a sale on gold.