While owning silver is a great investment, especially in today’s market; there may come a time when you wish to sell your silver. Whether you’re in need of quick cash or are looking to capitalize on an all time high spot price of silver, you have to be aware of the tax implications of selling. Certain methods of transaction carry different tax rates than others, and you’ll want to be informed.
Capital Gains Tax
You may be familiar with the Capital Gains Tax. Capital Gains Tax is the tax you pay on any profit you make on your investment, or any gain you receive from your capital. The current Capital Gains rate on collectibles of silver and other precious metals is 28%. This contrasts to the 15% long term capital gains tax on other investments.
If you sell your silver within one year of purchase, you are subject to the short-term tax rate, not the standard 28% tax rate. The short term tax rate is 35% at the regular income tax rate. All investment forms of silver are subject to Capital Gains- bullion bars and coins, ETFs, futures, paper certificates, etc.
The only one exempt from classification as a collectible is mining stocks. One unique feature about taxing silver is that if you gift the silver before it is sold, you can legally avoid capital gains tax. Short term investments are reported on Part I of IRS Form 1040, Schedule D; while long term investments are reported on Part II of IRS Form 1040, Schedule D.
The sale of your silver should be carefully documented. Precious metals dealers are not required to report purchases less than 1kg gold or 1,000 oz silver; however, you should make sure you always report any gains from the sale. If not, you face penalties and criminal charges. Certain states have different tax policies. Some don’t tax precious metal profits, while others offer reduced tax rates to investors who sell after a year, in what is considered a long term investment.
Use Form 1099-B to report alternate sources of income. As a general rule, coins minted by governments that are also used as legal tender do not need to be reported. Sales of silver bullion minted by private mints such as the Perth Mint do need to be reported. Transaction of silver over 1,000 ounces does also need to be reported.
If the silver you wish to sell is part of your IRA investment portfolio, you typically do not have to pay taxes on the sale. IRA accounts are tax-deferred, meaning you only pay taxes when you withdraw your funds. You are also taxed at the going rate at that time in the future when you withdraw. Ensure that the silver bullion you’ve placed in your IRA account complies with IRS regulations, or you could face a penalty tax and income taxes.
If you trade your silver for a “like-kind” silver product within 180 days of the sale, you can make a 1031 exchange. Types of exchanges that qualify include unallocated silver bullion for physical silver, silver bullion for silver bullion, and silver numismatic coins for silver numismatic coins. If you sell your silver looking to expand into an investment in gold, this is not considered a 1031 “like-kind” exchange.
As with the procedure for most taxes, the rules for reporting the sale of silver can be confusing. Consult with your financial advisor to make sure you are filling out the correct forms properly, and hold on to all paperwork to make the process easier on you.