In the eyes of the IRS, gold is a collectible. You pay capital gains tax when you sell your gold, much as you do on art, antiques or rare stamps. The tax when you sell is the same as your regular income tax rate, though it maxes out at 28 percent if you hold the gold longer than a year. There are ways to postpone the tax bite.
The federal government bans you from investing your IRA funds in collectibles, but gold is an exception. Provided the gold is bullion or U.S. coins and 99.9 percent pure, you can invest in gold, hang on to it, or sell it without paying tax. The profits from the sale go back into your IRA and accumulate tax-free. When you start making withdrawals -- usually when you're older and in a lower tax bracket -- you pay regular income tax on whatever money you take out of the account.
The big obstacle to placing gold in your IRA is that you can't take possession of the metal. The IRS doesn't count it as a legitimate investment if you keep the gold in your safe deposit box or your basement: The account trustee has to take charge of it. Many IRA brokers refuse, as they don't want the hassle of handling the transaction and finding somewhere to hold the metal. You might have better luck investing your IRA in an exchange-traded fund that tracks the value of gold rather than the actual metal.
A 1031 exchange allows you to postpone your tax bill by reinvesting money from your gold sale in more gold. If you sell some gold coins for $150,000 -- including $50,000 in capital gains -- you have 45 days to identify comparable coins worth $150,000 and six months to buy them. Assuming you meet the IRS 1031 requirements, there's no tax on the transaction. You can exchange your new purchase too, and the next purchase, but when you finally sell for cash, you pay the tax.
There's no federal tax when you buy gold, but some states do charge sales tax on the purchase. That can add up to quite a hit unless you buy from a state that doesn't tax the purchase. If you take a loss when you sell, you pay no tax. You can write off a loss of up to $3,000 in a given year. If you lose more, you have to carry the excess and deduct it the following year.
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