Taxpayers sometimes decide to sell collectibles and antique heirlooms for one reason or another. This could be due to a gifted piece not suiting their tastes, financial hardship, or something else entirely. Regardless of the reason, however, there are tax implications that come with selling any collectible crafted from precious metals. 

Collectibles gains and losses are derived from the sale or exchange of a collectible as defined in Code Sec. 408(m) (without regard to paragraph 3) held for more than one year. “Collectible” gains are taxed at a maximum rate of 28%. A taxpayer in a lower tax bracket, will be taxed at that lower rate. Code Sec 408 lists the following as collectibles:

• Works of art,

• Rugs,

• Antiques,

• Any metal or gem,

• Stamps

• Coins,

• Alcoholic beverages, or

• Any other tangible personal property specified by IRS for this purpose (Code Sec. 408(m)(2)).

This designation includes all forms of gold (other than jewelry), such as…

An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. According to IRS, ETFs that directly invest in precious metals

(“physically backed metal ETFs”) generate collectibles gain or loss to their investors (Internal Legal Memorandum PMTA2008-01809). This analysis won't apply if the ETF is not structured as a trust, or if the ETF doesn't directly invest in the metal. Examples of ETFs operating as grantor trusts are SPDR Gold Trust and iShares Silver Trust. Thus, the structure of each “physically backed metal ETF” must be considered to determine the tax consequences of an investment in that ETF.

For ETFs structured as grantor trusts, the preparer will need to carefully review the details included in the 1099 package provided by the taxpayer’s broker, or a tax information booklet issued by the trust. The latter may be found online (search by the name of the ETF plus “tax information”) if the taxpayer doesn’t have a copy. The information in these documents is used to compute the adjusted basis of any metal sold by the trust during the year, and considered a pass-through transaction to the ETF shareholder, so that the proper amount of gain or loss is reported by the taxpayer. Any long-term capital gain is taxable at a maximum rate of 28%. In addition, investment expenses (deductible on Schedule A as a miscellaneous itemized deduction subject to the 2%-of-AGI reduction for years before 2018 and after 2025) must also be separately calculated.