After our recent video on the tax treatment of gold and gold yield crossed 40,000 views, we received hundreds of thoughtful comments — so we brought Jeff Deist, General Counsel of Monetary Metals, back to answer your most pressing questions. In this Q&A episode, Jeff covers:
- Reporting requirements (Is there a $10,000 limit?)
- How international gold leases and yield are taxed
- How gifting vs inheriting gold impacts your taxes
- What the IRS really thinks about gold as “money”
Whether you’re a first-time buyer or a seasoned stacker, this episode will help you understand how to keep more of what you earn. Got more questions? Drop them in the comments — we may feature them in the next Q&A.
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Additional Resources
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Transcript
Ben Nadelstein:
Welcome back to the podcast. I’m joined today by Jeff Deist, General Counsel of Monetary Metals. Jeff, your recent video on the tax implications of gold was a major hit with over 40,000 views. People are very interested on the tax implications of gold and gold yield. We also got literally hundreds of comments asking for even more detailed questions about how gold is treated. So today, I’d love for you to just answer some of those questions, as many as possible, for the folks at home who want to learn about gold investing. Jeff, are you ready?
Jeff Deist:
I am. And It’s interesting that a boring tax video would get so many comments, and it just shows you people are really interested in the metals. Obviously, gold has been on a year and a half run now, but silver is really starting to catch up in terms of its historical ratio with the price of gold. And I think people are just more and more interested in the metals, not just as an investment, number go up, capital gains, but also, hopefully, in thinking about yield with us at Monetary Metals.
Ben Nadelstein:
Jeff, we’re going to get to Silver, Gold, and Gold Yield in this video. So let’s start with just a quick, simple one, which is if someone is selling gold that’s valued at less than $10,000 in total, do they still need to file that same tax paperwork that they do for larger sales, or are they exempt?
Jeff Deist:
Well, I think there’s a little bit of a miscommunication What’s the situation going on here. When it comes to selling gold, the only time there’s a $10,000 reporting limit to the IRS or to the bank regulators is when the transaction is taking place in cash. So this is going to be pretty rare if you’re at your local bullion dealer, if you’re at a bond shop, if you’re at a collectibles dealer, that thing. I mean, generally speaking, you’re not necessarily going to be dealing in cash. So people talk about this $10,000 reporting rule, but really that goes to Cash transactions.
And here’s the irony behind that, Ben, is that back in 1970, the now Infamous Bank Secrecy Act passed. Now, it’s been amended and added to many times over the years, including by legislation like the Patriot Act. What that bill did back in 1970 was it said, Well, okay, if you’re a banker, we want you to report cash transactions of $10,000 or more.
Okay, well, that was a way to maybe combat drug dealing or money laundering or criminal activity back then. But that $10,000 limit has never been adjusted for inflation. So 10 grand in 1970 was something like about $83,000 today, which means you should be able to walk into a a car dealer, buy a brand new Lexus, basically, in cash without that being reported.
But it’s never been adjusted for inflation, which is really a form, I think, of financial privacy being lost over the years because that number is really ridiculously low. And since that Bank Secrecy Act of 1970, which originally applied to banks, it’s been expanded to, as I mentioned, car dealers, jewelers, bond shops, any business that’s likely to have cash transactions. So we’ve really lost quite a bit of privacy with respect to the use of our cash over the years.
Ben Nadelstein:
And I also want to ask you about that same reporting requirement when it comes to silver as well as silver yield. So obviously in the video, you discussed how gold and gold yield is taxed. But what about silver? Do the same rules apply?
Jeff Deist:
They do. Silver, unfortunately, even though it has less numismatic value than gold, oftentimes it’s more of an industrial use in metals or a jewelry use. It’s treated the same way. It’s treated as a collectible, and unfortunately, potentially subject to that same terrible 28% collectible as capital gains rate.
Ben Nadelstein:
Now, I wanted to ask you about this idea of tax loss harvesting. So many people know if they own stocks and they go up in price, there’s a tax, maybe a capital gains. But sometimes if stocks go down in price, they can actually do something called tax loss harvesting. So we had a comment question saying, Can an investor claim a tax loss if they sell gold for less than they originally purchased it for?
Jeff Deist:
Well, they can in the same way that they could by selling any other capital asset. Now, you and I, and a lot of our listeners, might think that gold is more of a monetary asset, but in the world of accounting and in the world of tax law, it’s treated as a capital asset held for investment and even a collectible, as we’ve seen. So it’s not money in that sense.
And so, yes, when you purchase gold and then later sell it, you have a gain or a loss in exactly the same way you would have with a stock. But now here’s the kicker. As individuals, individual taxpayers on their 1040 are treated differently than corporations here. In other words, individuals have to net out their capital gains and losses.
And as you’ll recall, you can have short term, which is assets held for a year or less, and long term, which is 12 months or more. So you have to take these two different baskets of investments and you have to net them out for the tax year. And you can have lots and lots of gains and lots lots of losses and come up with a final amount netting them together, which is either positive or negative.
And now, if that’s positive, of course, you’re going to owe some capital gains. If it’s negative, you think, well, gee, whiz, I should have a nice capital loss, which I can apply against My ordinary income, maybe for my job or my W2 or other 1099s or whatever it might be. Unfortunately, however, for individual taxpayers, that capital loss is capped at $3,000 per year.
If you happen to be a big player, and you have all kinds of gains and losses, and that comes out to $100,000 loss for the year. You can only take a deduction for the actual $3,000 loss against your other income. The good news is that that remaining $97,000 loss that you weren’t able to claim as a deduction can be rolled forward indefinitely on your future tax returns, but that won’t make you too happy in the actual year when you’re hoping to pay less.
Ben Nadelstein:
Very interesting. Next question for you, What taxes apply when someone first purchases gold or first purchases their silver?
Jeff Deist:
Well, effectively, there is no tax on that initial purchase, and this goes back to the idea that gold and silver are capital assets as opposed to money. Now, money, cash money in your bank account, for example, or in your money market account, has no tax basis. A dollar is always a dollar. The irony, of course, is that you and I know that those dollars are actually depreciating against the goods and services, the stuff we want to go out and buy.
So if I have $10,000 in an account and I do nothing with it, a year later, maybe that only buys $9,900 or $9,500 worth of actual goods and services. I don’t have a tax basis in those dollars, so I haven’t exchanged them in a way that gives me a tax loss.
That’s just an unfortunate conceptual reality of our tax code. So dollars are always the basis of their nominal face value. But when you take those dollars and go out and, let’s say, buy a share of Apple stock, I haven’t looked at Apple, let’s say it’s $500 a share. You have exchanged those $500 for a share of Apple. In economic parlance, we would say, well, gee, whiz, you’re better off.
You prefer one share of Apple to the $500 that were in your bank account. But nonetheless, that is not a taxable exchange or a taxable event. You have simply purchased a share of Apple at $500, and it has a $500 tax basis. So going forward, if you sell it for a thousand someday, and that’s more than a year away, let’s say it’s a long term capital gain, you’ll have a gain of $500. If you sell it for $400 someday at a loss, you will have a capital loss of $100.
But your tax basis is that $500. It’s the exact same when you purchase physical precious metals, gold or silver, you’re going to have a tax basis of what you paid for the metal itself. Now, the one bright spot in this scenario is that you can add in those spreads and fees, any charges you pay.
It’s not just the spot or LBMA fixed price of the metal the day you buy it, it’s actually the total purchase price. So if you’re paying a little bit of a markup, and it’s physical market waxes and wanes in places like bond shops and gold dealers. So you may pay a premium at certain points, depending on the metals market, and you do get to include that premium in your basis.
Ben Nadelstein:
Very, very important points there. Next, I want to ask you about the cost basis and how it’s determined for your gold holdings.
Jeff Deist:
Well, your cost basis is simply what you paid for it, and that is the basis that you carry forward in life to where you They’re disposed of the metals by selling them. You might give them away, and ultimately, you might die and leave them to someone in your estate planning.
Ben Nadelstein:
Can you now break down the differences in the cost basis and how it changed depending depending on how that gold is passed on? For example, if I give it as inheritance or if I give it as a gift, whether I’m alive or whether I pass away, what are the differences in terms of that cost basis and how it changes?
Jeff Deist:
Yes, well, there are very serious differences between a gift, which is what we call a lifetime transfer. In other words, a gift is something you give to someone while you’re alive, by definition, again, using tax parlance, whereas a bequest is something you give to someone when you’re dead. The good news here is that when you’re dead, you save a little bit of money.
You just won’t know it, perhaps. And really, the concept is pretty simple. And as an aside, the current tax rules allow you to give another individual up to $19,000 a year with no tax implication for you or the recipient with respect to gift tax, estate tax, income tax, or otherwise. So there’s a gift exemption that’s currently $19,000 a year.
Which means that you could go give someone $19,000 worth of gold, and you wouldn’t feel any tax impact, and neither would they. So the $19,000 gift limit is a good thing to keep in mind when you’re considering how you organize your own finances. But basically, if you give someone any capital asset, that could be a stock, that could be an appreciated piece of real estate, or that could be 100 ounces of gold, and you give that to someone during your lifetime.
Well, depending on the size of the gift, that could go to the exemptions that apply to what’s called a unified gift an estate tax credit that works against your lifetime giving. But that limit’s pretty high and doesn’t apply to most people. So you don’t generally have to worry about that. But whatever the fair market value of that metal or that stock or that appreciated piece of property is, that’s not the tax basis that the gift recipient gets. They get what’s called a carry-over tax basis in the tax, which means that they inherit the basis that you had.
Now, if we step back and think about this conceptually, it makes sense in a certain way because let’s say you buy some Apple stock for 500. It appreciates to $1,000 per share, and you give that, let’s say, to one of your children. Well, you haven’t sold it, and so you haven’t paid any tax on it. And so Uncle Sam hasn’t gotten his bite at the apple. So he’s going to say, Okay, you can give it away. But that person who gets it, even though it’s worth the thousand now, they still have that same $500 basis because someday they’re going to sell it.
At some point, We, the IRS, need to get our piece of the pie from that. Now, if you do the same thing, but you wait until you pass away and you provide this gift to your son or daughter, let’s say, in your will or your trust, well, a very different tax treatment applies. When you give an estate-type gift, a bequest, when you die, you get what’s called a step-up-in basis.
So that means if you bought that Apple stock at 500 and it’s worth a thousand, or if you bought that piece of real estate for $100,000, it’s worth $250,000. Your heir gets to take the new tax basis, the fair market value as of the date of your death, which is quite a tax advantage. And there’s a variety of reasons for it. I mean, the tax code has been cobbled together over many, many years. And as you know, it represents a lot of special interests.
For example, life insurance payouts are not considered taxable income to the recipient. Why is that? Well, because the life insurance is a big industry in America, has always had a powerful lobby. So if a loved one passes away and you get their life insurance policy as a beneficiary, you don’t pay a dime of tax on that.
And likewise, there’s a big industry that says, People ought to be able to pass something to their heirs without having to give too much to Uncle Sam. So over the years, we’ve developed this idea of a step-up in basis. There really is a pretty unique tax advantage to waiting until you pass away to gift highly appreciated assets to your loved ones.
And again, that could be precious metals. It could be other capital assets like stock or real estate. Ironically, though, So oftentimes, people are organizing their lives and their state plans around tax consequences instead of living their lives and perhaps helping their children when they were younger and they might need it more. So all of these various tax treatments have a lot of maybe perverse or unforeseen consequences in terms of how people actually act and organize their lives.
Ben Nadelstein:
Well, for anyone listening, I’m happy to take a $19,000 gift of gold. Okay, Jeff, on to the next question. We offer gold leases at Monetary Metals, but what if a lease involves an international company? Does that trigger international tax filings?
Jeff Deist:
Well, it doesn’t. And here’s the reason why we, Monetary Metals, we engage in lease transactions all over the world, in the Middle East, in UAE, in Europe, in America. However, Monetary Metals is a US Corporation.
That lease income that those jewelers and refiners, and fabricators, and anyone who uses physical gold in their operations, those lease payments come home to us through our LLLCs and through our legal structure, and ultimately to Monetary Metals as a US Corporation. And that US Corporation in turn turns around and pays you, your lease fee. So assuming you are a US taxpayer, then there are no international tax implications whatsoever, and you are simply receiving a 1099 from Monetary Metals at the end of the year.
Now, for our non-US taxpayers, again, the site of the lease is not what matters. What matters is that Monetary Metals is a US payor. Monetary Metals is who is paying you in terms of the 1099 or what’s called a 1042 for non-US taxpayers. And so as long as there is a treaty or perhaps some tax advantage treatment between you and Monetary Metals, excuse me, you, meaning the foreign country in which you reside in monetary metals, then you can receive very little withholding or sometimes zero withholding.
If you happen to reside in a country that doesn’t have a tax treaty with the United States, unfortunately, we’re required by US law to withhold some of those lease payments we make to you. But in either case, it has nothing to do with the fact that the jeweler or the refiner leasing the metal is not in the US.
Ben Nadelstein:
Great answer. Last question here for you, Jeff. Do Gold ETFs face the same tax treatment as physical gold. We’ve been asking all these questions and answering for physical gold. How do gold ETFs fare on these tax questions?
Jeff Deist:
Well, at the end of the day, a gold ETF is treated for tax purposes just like a stock. It is a security. It’s oftentimes a basket of securities, oftentimes traded only once a day. That’s mechanically how a lot of ETFs work. But nonetheless, from Uncle Sam’s perspective, an ETF It is simply like owning a share of Apple, and you buy in at a certain price. That becomes your tax basis. Depending on whether you hold it for more than 12 months, it then becomes a long term capital gain. And if you ultimately dispose of it, you pay tax on the difference. So it’s just like a stock in that sense.
Ben Nadelstein:
Jeff, I want to thank you so much from myself and the viewers for all these great tax answers about these tax questions. If you have more questions about gold and gold yield, as well as the tax implications, leave them below in the comments, and we might get to them in another video. Jeff, I want to thank you so much. Are there any other tax implications or tax answers that we should leave our guests with?
Jeff Deist:
Well, the number one answer is that we, unfortunately, in Monetary Metals, can’t give you tax advice per se. And so if you have any real questions about how to fill out your own forms or how to comply with all the IRS rules, please get your own tax attorney or tax accountant to handle it. But we’re very happy to help as much as we can with your reporting.
And we’re always happy to answer questions generally so you understand broadly the tax consequences. And yield from Monetary Metals is really a wonderful new product. And the tax treatment is favorable, and you don’t have to get involved in actually selling your precious metals. That’s the beauty of it. You maintain ownership.
Ben Nadelstein:
Jeff, thank you so much. And for those viewing, you can check out monetary-metals.com to learn more. Thanks so much.
