Precious Metals Tax Question

Higashiyama

Suppose I buy 10 ounces of gold at $ 950, and a year from now it is up to $ 2000.

Suppose at that time, silver is selling for $40.

If I then trade my gold for 500 ounces of silver, is this a taxable event?

cars

I don't believe so. I do not get taxed when I trade my car for another car. I really don't know for certain however, I'm sure an expert will chime in. FC?

jmski52

My thought is that it would definitely be taxable, although you really need to ask your tax attorney or accountant.

I don't think that you could convince the IRS that these two transactions were like kind.

If you bought cotton today and sold it later to buy pork bellies, I don't think it would be seen any differently than your idea.

Higashiyama

jmski52 -- my guess is that you are right, though thinking about income tax in the context of precious metals really emphasizes the fact we have a wealth tax.

If I buy gold at 1000 when the CPI is 100, and sell it at 2000 when the CPI is 200, it is abundantly obvious that I had no gain, yet I owe taxes.

Has this aspect of the tax code ever been challenged? (ie, taxation of illusory gains caused by inflation?) The 16th amendment provides for an income tax, but not a wealth tax.

mkman123

if you do this at a local B&M, how would the government even know????

cars

<< <i>if you do this at a local B&M, how would the government even know???? >>



If you evade Uncle Sam's tax, He'll invade your space.

NitroCruiser

If you buy precious metals as part of a IRA portfolio, everything would have to be carefully documented. Otherwise I would imagine much of it goes unreported, unless that is your business.

fc

i hope this is suitable cars.

so yes. i am trying to find you the exact rules but i am only getting
to the surface of the issue.

here you go: http://www.irs.gov/businesses/small/article/0,,id=187904,00.html

Bartering Appreciated Assets

Examples of appreciated assets often include art, antiques and collectibles. If you have barter transactions of property where the fair market value is more than your cost or other basis, you usually will have a reportable gain. These gains may be business income or capital gains.

CaptHenway

<< <i>Suppose I buy 10 ounces of gold at $ 950, and a year from now it is up to $ 2000.

Suppose at that time, silver is selling for $40.

If I then trade my gold for 500 ounces of silver, is this a taxable event? >>



That is a question for an accountant.

roadrunner

Bullion is no different than cash to the IRS. No matter how you trade it or dice it, it's a taxable event. You trade a rare coin for bullion...it's taxable. The only possible exceptions that an accountant may be able to referee would be collectable silver bars or collectable gold, etc. Considering that proof gold eagles are now going for $1400-$1500 (well over the so-called 15% IRS "thumbrule"). Removing inflation effects from bullion gains is not an option imo. If that were the case, then every one would be taking out inflationary gains from stock, bonds, collectibles, coins, etc. Just find out how much the dollar has depreciated since you've owned the item and subtract that out. Good luck with that. And in the case that dollar deflation has occured such as the last 12 months, are you going to toss in extra tax since you really gained more due to the dollar strengthing? If it were so easy to move back and forth between metals and collectibles w/o paying taxes the whole world would be into metals, coins, art, etc. Why play with stocks and bonds while they remain taxable? Better yet, imagine trading back and forth between say 100 shares of GE and 110 shares of Yamana gold and claiming no gain because they are dissimilar entities. Sorry, but bullion gets no free pass imo. Consult your own accountant for their views. Maybe they will give you the green light.

We have now run into the issue of spot premiums for many items exceeding that 15% "hazy" thumbrule. Does that make them tax exempt? What about Morgan silver dollars that wholesale for $15-$18? Those are easily 2X silver spot price but are really not much more than bullion to most people. What would the IRS think? What about circ XF/AU Walkers? What if the price of silver triples and that Morgan dollar premium evaporates, are you now into a new category where your "collectable" must now be considered "bullion" and that your previous trade is no longer tax exempted? Hmmmm.

Lots of questions to be considered.....and few answers. I would bet that accountants would have varying views, while the IRS would be fairly steadfast and conservative in their views. Odd though that in the tax code gold and silver bullion are placed in with the "collectables" yet they say out the other side of their mouth that they are cash equivalents. In essence you are being taxed on cash.
Cash substitutes are not well-liked by TPTB and one should expect continuing legislation down the road to deter people from inexorably moving into these areas.

roadrunner

garsmith

Guberment all ways wants their pound of flesh; so I would say yes

jmski52

Taxes are due only on a gain at the time of the sale. The date of the purchase doesn't enter into figuring the gain or loss (unless it's a stock or bond, in that case you can take advantage of the long term capital gains rate, if you have a long term capital gain, that is...)

It doesn't matter whether you are buying & selling avocados or Gold American Eagles - to the IRS a gain is a gain, and is taxable. I don't think that bullion or coins are allowed to fall under long term capital gains, so you must pay the marginal tax rate for your ordinary income on the year if you have bullion or coin profits.

You simply must keep very good records of the cost basis and the net proceeds for all purchases and sales, down to the gnat's ass. And, remember that a loss is valuable in neutralizing a gain, as long as you can document the loss completely. So, if you have a nice gain on something that you are liquidating, start looking around for the scudzy stuff that you want to get rid of, even at a loss - and then offset some of your gain with the loss while recouping some of that "dead" capital. You'll feel better for it.

So in any given year, if you sell 10 2007 Gold Eagles at a $1,000 gain and at the same time you sell 1,000 2004 Silver Eagles at an $800 loss, you have a net $200 gain only.

Keep good records. I like having various types of bullion - that way I can always identify it in specific ways - so as not to give away any more tax than I am compelled to under law.

oreville

<< <i>Suppose I buy 10 ounces of gold at $ 950, and a year from now it is up to $ 2000.
Suppose at that time, silver is selling for $40.
If I then trade my gold for 500 ounces of silver, is this a taxable event? >>



I am a CPA and the answer is yes. I have discussed this issue many times with the IRS attorneys and IRS tax researchers.

In other countries, the tax laws vary and many countries do not view it the same way as the USA's Internal Revenue Service.

In the US, the bullion is considered a cash equivalent and cannot benefit from the like kind exchange rules.

ProofCollection

<< <i>It doesn't matter whether you are buying & selling avocados or Gold American Eagles - to the IRS a gain is a gain, and is taxable. I don't think that bullion or coins are allowed to fall under long term capital gains, so you must pay the marginal tax rate for your ordinary income on the year if you have bullion or coin profits. >>



While a gain is a gain, the question I believe is when is the gain realized? If you trade gold for silver, have you realized any gains? Or can you wait and pay taxes when you finally convert the silver into USD?

jmski52

If you trade gold for silver, have you realized any gains?

Yes, if the gold has gone up since you bought it.

Or can you wait and pay taxes when you finally convert the silver into USD?

Nope.

roadrunner

Oreville, thanks for that input.

Can you make a statement as to what constitutes "bullion" in these days of backwardation, elevated spot prices, and big premiums for small size silver? The IRS is probably tackling these issues already. Or if they aren't they ought to be as their former rule of 15% premium to melt is under attack.

Are any of these still considered bullion?

-$20 Saints/$20 Libs any grades/$10 Libs and Indians any grades
-American Silver Eagles
-Proof silver and gold eagles
-2009 UHR's
-ave circ Morgan silver dollars (VG-VF)
-XF/AU circ Morgan dollars
-BU rolls of Franklins, Washingtons, and Roosies
-circ silver war nickels (wholesaling for 59c each)

I know 90% silver coin is now wholesaling for 10% over melt so that's clearly still bullion as would be bars and one ounce rounds.

roadrunner

jmski52

roadrunner, I see what you are getting at, but I think that you'll have to wait for a test case before you get your answer.

The Proof AGEs and ASEs and APEs (and the UHR) are being marketed as collector coins by the government and that should be a jump start in establishing them as non-bullion coins.

The only bullion coins on your list for sure are the Regular Issue Silver Eagles, since they were created in the original law as bullion coins. Their status should be indisputable.

However, the stuff that was traditionally called "bullion" because of it's small or non-existant premium to melt - might someday be considered as something other than bullion, and the premium might be included in the case being made that it isn't bullion.

All of this may be a moot point anyway. Correct me if I am wrong, but whether its a collectable coin or a bullion coin, neither category qualifies for capital gains treatment. The idea behind having lower capital gains treatment is/was to promote capital investment in a means of production, i.e. a manufacturing facility. Coins and bullion don't meet that criteria.

Somehow, I believe that Uncle Sam will resist efforts to reclassify any assets that would result in less tax revenue, unless a true fiscal conservative congress and true fiscal conservative president are in power.

With the current lightweight political hacks in charge of running tax policy, I have to believe that the focus will eventually turn to precious metals holdings as an untapped revenue source, if it even begins to look lucrative. Fortunately (wierd choice of words), the Federal Budget and Federal spending is so out-of-control, that there really is **no** source big enough to tap for their social experimentation agenda.

PerryHall

If the trade is made between two private individuals and the IRS doesn't know about it, do you still have to pay taxes on the transaction?

COINB0Y

There is NO such thing as a Taxable Event!

illini420

I would think that some of this higher premium "bullion" isn't quite cash equivalent... I think that you should be able to treat them as collectibles (as you would do with coins) subject to the 28% gains rate, no?? Not much of a savings over ordinary income rates for many folks though.