Monday, November 16, 2009

Gold ETF's - Big Surprise At Tax Time

In TV commercials and across the Internet, managers of exchange-traded funds tout the tax advantages of their products.

But according to a story in the latest issue of Barron's, many investors in precious-metals ETFs have to deal with an unwelcome surprise come April 15.

The issue is that gold and silver fall under the heading of "collectibles" in the eyes of the Internal Revenue Service, making these metals similar to artworks, antiques, vintage wine and rare baseball cards.

This status means that profits from gold and silver investments do not qualify for the 15 percent maximum on long-term capital gains that pertain to stock and mutual fund investments.

These profits are instead taxed at a 28 percent maximum if held for more than a year, and at ordinary income rates if held for less than a year.

With the rapid appreciation of gold in recent years – the current price is nearly double where it was in early 2007 — many investors who cashed out their gains in gold ETFs may be hit with unexpectedly big tax bills.

The same liability may hold true for investors who didn't sell a single share of their gold ETF. That's because when the ETF itself sells physical gold or silver, any gains or losses are passed along to investors, who then face the maximum 28 percent tax liability even if they didn't actually realize the gain.

Not all gold–related ETFs are considered collectibles, but for those that are, investors should be aware of the rules so they can weigh the advantages and disadvantages of their investment options.

Here is a link to the Barron's story (subscription required): Gold Is Precious to the IRS, Too

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