If you are among the many people who invest in silver bullion or other precious metals, chances are you’ll eventually want to sell your holdings. Hopefully you will make a nice profit. If you do, you can count on the Internal Revenue Service to be right there, looking for a cut. On the other hand, if you lose money you can take some of the sting out of it by deducting the loss on your income taxes.
Bullion is a term used to refer to silver and other precious metals. Silver bullion coins and bars get their value only from their weight. By contrast, collectible silver coins or antiques are valued for rarity, age and artistic beauty as well as the metal content. The IRS classifies income from selling silver bullion as a capital gain or as a capital loss if you lose money on the deal. This is good news because you might pay a lower income tax rate on a capital gain.
Profit and Loss
Before you can determine the income tax consequences of selling silver bullion, you have to determine how much you made or lost. First, calculate your cost basis. Cost basis is the total amount you spent for an investment. For silver bullion, this typically includes dealer fees or discounts for the purchase and sale of the silver and storage fees in addition to what you paid for the coins or bars. Subtract the cost basis from the proceeds you get from selling the silver bullion. If the answer is a positive number, you have a capital gain. If the answer is negative, you lost money.
To determine the tax consequences of selling silver bullion, you need to take into account how long you owned the metal. If you sold the silver one year or less from the day you bought it, any gain is short-term and is taxed as ordinary income. If you held the bullion for more than a year, it’s a long-term capital gain and your maximum tax rate is 15 percent. Use a loss to first offset like gains. That is, offset long-term gains with long-term losses and short-term gains with short-term losses. If losses completely offset gains, you can use any leftover to offset other income.
A Word about IRAs
If you use an IRA or other tax-deferred account to invest in silver bullion, there generally are no tax consequences for selling it because all funds in the IRA are exempt from taxes until they are withdrawn. However, the IRS only allows American Eagle silver coins and certain other high-quality silver bullion coins and bars. If you don’t follow the rules, the IRS may consider the investment an early distribution. You’ll have to pay ordinary income taxes and a 10 percent penalty tax.
Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.