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Gold and taxes
Question: I've been fortunate to have put a bit of money into a gold ETF (GLD, for the record), one of the ones that actually just buys bullion, not stocks in gold producing companies. My question pertains to any gains I have made on this investment. Am I correct in understanding that this type of income comes under the category of "collectibles", and thus incurs a significantly larger tax rate than normal long term capital gains? Ken, Arlington, MA
Answer: Yes, gold is considered a collectible for tax purposes, and that includes the gold exchange traded funds (ETFs). And you're right, the investment comes with a higher long-term capital gains rate.
For a gold ETF held for more than a year the maximum long-term capital gain rate is 28%. (It's 15% for ordinary stocks, bonds, and other investments.) Short-term gains on collectibles are taxed at your ordinary income tax rate. The GLD prospectus has a section on capital gains and taxes.
I also hold GLD (and have for a couple years). The other complication is that GLD's expenses are satisfied by the administrator "selling" a portion of the underlying asset (gold) each month. This means that the number of ounces of gold per share of GLD gradually decreases.
When held in a taxable account, this results is 12 "sell" events each year, even if you didn't sell GLD. The gain/loss calculation for this is horrendous. I found this site to be very helpful: <a href="http://www.costbasistools.com/gold/GLD.php">http://www.costbasistools.co...
Each "sell" is offset by an equal amount of investment expenses, but that's hard to deduct unless you have a lot of other investment expenses.
