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Author: REtim Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121333  
Subject: Precious metals question Date: 6/4/2012 10:14 AM
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Hi All

I have been dollar cost averaging into small quantities of gold and silver eagles for some time. If, for example, i sold an ounce of gold for a profit, how is the cost determined and how is the profit taxed? After all, gold eagles have no serial #/ ID other than the date on them so receipts seem pretty meaningless.

That is, if i sell that gold eagle, wouldn't i just claim it cost the highest price i ever paid for gold?

Just musing on some future time when i cash them in...

Thanks!

Timmo
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Author: mathetes Big red star, 1000 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116218 of 121333
Subject: Re: Precious metals question Date: 6/4/2012 1:35 PM
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REtim: I have been dollar cost averaging into small quantities of gold and silver eagles for some time. If, for example, i sold an ounce of gold for a profit, how is the cost determined and how is the profit taxed? After all, gold eagles have no serial #/ ID other than the date on them so receipts seem pretty meaningless.

That is, if i sell that gold eagle, wouldn't i just claim it cost the highest price i ever paid for gold?

Just musing on some future time when i cash them in...


why would it be any different from what is allowed with stock transactions?

presumably whatever price you claim as the basis is something for which you do have documentation. And so long as we're presuming/assuming, let's assume you sold that entire highest price lot at the time of this hypothetical sale ... so long as you don't turn around a year later and try to get away with selling the same lot again, you'd be fine.

In other words, keep records of all buys and sells and don't try to get away with multiple claims for the same high cost lot.

But this is a layman speaking; I'll be interested in what the tax experts have to say as well.

mathetes

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116219 of 121333
Subject: Re: Precious metals question Date: 6/4/2012 11:43 PM
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I have been dollar cost averaging into small quantities of gold and silver eagles for some time. If, for example, i sold an ounce of gold for a profit, how is the cost determined and how is the profit taxed? After all, gold eagles have no serial #/ ID other than the date on them so receipts seem pretty meaningless.

That is, if i sell that gold eagle, wouldn't i just claim it cost the highest price i ever paid for gold?

Just musing on some future time when i cash them in...


I haven't done the research but there are two possibilities that come to mind. The first is that you would treat the sale like the sale of anything else, if you know the cost basis of the specific item you sold, that's what you would use, otherwise you use the cost basis of the oldest similar item.

The second possibility follows the rules for sales of precious metal ETFs such as GLD and SLV. If these rules apply, you would calculate your total cost basis for all of the similar items you owned and allocate a percentage of that cost basis (weight of precious metal sold to total weight owned) to the sale.

As I stated above, I haven't had to address this for a client and I haven't done any research, so I won't infer that either of these methods is correct.

Ira

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116220 of 121333
Subject: Re: Precious metals question Date: 6/5/2012 7:17 AM
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...i sell that gold eagle....

Aren't gold and silver coins treated as collectibles and not as commodities or stocks/bonds?

Eric Hines

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116221 of 121333
Subject: Re: Precious metals question Date: 6/5/2012 9:10 AM
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Aren't gold and silver coins treated as collectibles and not as commodities or stocks/bonds?

They are taxed as collectibles, but that doesn't answer OP's question about determining basis. Hopefully someone knows for sure (tain't me).

Phil
Rule Your Retirement Home Fool

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Author: JeanDavid Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116223 of 121333
Subject: Re: Precious metals question Date: 6/5/2012 1:21 PM
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They are taxed as collectibles

If the tax laws made any sense (how could they? they are enacted by senators and congressmen), then numismatic grade gold coins would be taxed as collectables, and bullion grade coins, gold bars, etc., would be taxed as any other metal, as commodities.

Alternatively, oil, coal, soybeans, etc., should all be taxed as collectables.

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Author: loopholes One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116228 of 121333
Subject: Re: Precious metals question Date: 6/6/2012 8:52 PM
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I don't think the election to use average cost basis is available unless you're selling mutual fund shares or other covered securities. I looked in publication 550 and 544 and, while they describe the general rule for cost basis transactions (specific identification or FIFO) and also discussed the special cost averaging election for mutual funds, there was no discussion of any special rules that might apply to determining tax basis in fungible collectibles acquired in multiple purchase transactions. Silence on the point implies strongly to me that the general basis rules Ira stated as alternative #1 apply. OP may want to look at these publications and draw his/her own conclusions.

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Author: REtim Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116230 of 121333
Subject: Re: Precious metals question Date: 6/6/2012 11:14 PM
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Thanks, All, for the insights! Who would have thunk little ole me would ever find a 'silent' part of the tax code...

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116232 of 121333
Subject: Re: Precious metals question Date: 6/7/2012 8:38 AM
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I don't think the election to use average cost basis is available unless you're selling mutual fund shares or other covered securities. I looked in publication 550 and 544 and, while they describe the general rule for cost basis transactions (specific identification or FIFO) and also discussed the special cost averaging election for mutual funds, there was no discussion of any special rules that might apply to determining tax basis in fungible collectibles acquired in multiple purchase transactions. Silence on the point implies strongly to me that the general basis rules Ira stated as alternative #1 apply. OP may want to look at these publications and draw his/her own conclusions.

The possibility of using average cost basis is derived from the treatment of GLD and SLV which are not subject to FIFO or specific identification determination of cost basis. Granted GLD and SLV are WHFITs (widely held fixed investment trusts), but ownership of GLD/SLV is deemed to be ownership of the underlying physical gold/silver asset. Definitely further research is required and the IRS Pubs do not provide definitive answers.

Ira

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116233 of 121333
Subject: Re: Precious metals question Date: 6/7/2012 8:41 AM
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Thanks, All, for the insights! Who would have thunk little ole me would ever find a 'silent' part of the tax code...

The tax code itself is probably not silent on this matter, just the IRS Pubs. You may need to dig into the code language, relevant regs, and decided tax court cases to get the answer to your question.

Ira

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