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Will I owe taxes on gold and silver coins?

December 24, 2012: 6:30 AM ET

Do you pay a tax on silver or gold coins when purchased or sold? What are some of the advantages and disadvantages of gold and silver coins as an investment? —Vernon

When you buy coins, you may owe sales tax, depending on which state you buy in. But selling triggers a very different tax, says Rob Chapman, founder of Rochester, N.Y.-based advisory firm Compass Wealth. Because the IRS considers precious metals collectibles, a special capital gains rate applies to any profits on their sale. Gains on coins held less than a year are treated as short-term capital gains and taxed at your ordinary income tax rate, while those held for a year or more are taxed at the capital gains rate of 28% for long-term collectibles.

Gold and silver bullion coins provide a hedge against inflation, but there are a few drawbacks, cautions Chapman. For starters, bullion coins such as the Canadian Gold Maple Leaf or the American Silver Eagle often carry premiums of as much as 16% over the value of their gold to cover the cost of minting and distribution. So those coins will have a lot of ground to make up before they can be sold for a gain. Then there's the added cost and inconvenience of storage and insurance. Lastly, unlike stocks or ETFs, precious metals can't be traded instantly at the click of a mouse. "If you want to buy and sell these types of coins," Chapman says, "you have to go and find a buyer yourself."

— Marc Mewshaw

Got a question for the Help Desk? Send it to helpdesk@cnnmoney.com.

Posted in: Investing, Taxes
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