Tax Reporting Requirements for the Purchase, Sale and Exchange of Precious Metals ( Part 3)
- What is a taxable sale of precious metals? A taxable sale occurs when the investor relinquishes legal title and possession to his or her precious metal investment, in any form in return for consideration.
- How do I compute taxable gain or loss? The amount received from the sale or disposition of the precious metal shall be the sum of money received plus the fair market value of other property received.1
The taxable gain from the sale of precious metal shall be the excess amount received over the original purchase price of the property sold. 2 Provided that the investor is not a dealer in precious metals, the taxable gains from the sale of precious metals are treated as gains from the sale of capital assets.3 Provided that the property sold is owned for one year plus one day, the owner is entitled to tax the sale at 28% rate. If the property is owned for one year or less, the owner is taxed at his or her respective marginal tax rate, which can be as high as 35%.
- Transactions that result in taxable sale. Transactions where physical possession of precious metal is surrendered and transferred to another party in return for a sum or money and/or the receipt of other property. Based on your custodial agreement, the transfer between allocated storage of specific coins or bars and unallocated percentage interest in a storage pool of coins or bars accounts. The exchange of physical gold for a fractional undivided interest in a pool of bullion is a taxable sale.
- 6 steps to Convert a Taxable Sale into a Non Taxable Exchange. The sale and subsequent purchase of precious metals is a taxable sale, even if the transactions are done within 45 days. In order to defer the tax on gain from the sale of precious metals, the transaction must follow the technical requirements of Section 1031 as follows.4
- The first step in converting a taxable sale into a non-taxable exchange is to include language in the purchase and sale agreement required by the tax regulations identifying the sale as an exchange.
- The investor enters into an agreement with an Exchange Company to facilitate the exchange for the investor. The Exchange Company is also known as a Qualified Intermediary. The agreement must be executed before the purchase or sale.
- The buyer and the seller of the property to be sold acknowledge in writing the transaction is an exchange.
- The proceeds are deposited into a qualified escrow account as provided in the exchange tax regulations.
- Replacement properties must be identified within 45 days of the sale date and received within 180 days.
- The buyer and the seller of the property to be purchased acknowledge in writing the transaction is an exchange.