Long-term gains on physical gold and physical-backed gold ETFs are taxed at the 28% collectibles rate, not the standard 15% or 20% long-term capital gains rate. Short-term gains (held under 1 year) are taxed as ordinary income at your marginal rate. Gold held inside an IRA is taxed at distribution as ordinary income, regardless of holding period, meaning a Roth IRA is the most tax-efficient way to hold gold long-term.
The IRS classifies physical gold (coins, bars, bullion) as a 'collectible' under IRC Section 408(m). Long-term gains on collectibles are taxed at a maximum rate of 28%, not the 15%/20% rates that apply to stocks and most investments. This applies to physical gold AND to physically-backed gold ETFs like GLD, IAU, GLDM, and SGOL, because the ETF holds physical gold, the IRS treats the ETF shares as collectibles too.
Short-term gains (gold held less than 1 year) are taxed as ordinary income at your marginal rate, up to 37% federal. There's no preferential short-term rate for collectibles vs other investments; the 28% maximum only applies to long-term.
State tax also applies. Illinois taxes capital gains as ordinary income at the flat 4.95% rate, with no preferential collectibles rate. So a Northern Suburbs resident selling physical gold held 1+ year pays approximately: 28% federal + 4.95% Illinois = 32.95% effective on the gain (plus 3.8% NIIT for high earners pushes it to 36.75%).
The most tax-efficient long-term gold holding strategy is a Roth IRA: contributions are after-tax, but qualified distributions (after age 59½ and 5-year rule) are entirely tax-free, no 28% collectibles rate, no income tax, no state tax. Traditional IRA gold is taxed as ordinary income at distribution, which can be lower or higher than 28% depending on your retirement bracket. Outside a retirement account, holding physical gold or gold ETFs in a taxable brokerage account locks in the 28% rate at sale.
Key facts
- Long-term physical gold capital gains: 28% federal collectibles rate (max)
- Short-term physical gold capital gains: ordinary income rate (up to 37% federal)
- Gold ETFs holding physical metal (GLD, IAU): same 28% collectibles rate
- Gold mining stocks/ETFs (GDX, GDXJ): standard 15%/20% long-term rate
- Illinois state tax: 4.95% flat (no collectibles distinction)
- Roth IRA gold: tax-free at qualified distribution (best long-term option)
- Traditional IRA gold: ordinary income at distribution (no 28% rate, but no LTCG either)
Do I report gold sales to the IRS?
Yes. Sales of gold are reported on Schedule D and Form 8949, just like any capital gain or loss. Dealers are required to file Form 1099-B for sales of certain quantities (e.g., 25+ ounces of gold bullion); private sales below those thresholds require self-reporting. Either way, the gain is taxable. Keeping accurate records of purchase dates, prices, and dealer premiums is essential, your basis is what you paid (including the dealer markup), not the spot price.
Can I avoid capital gains tax on gold by gifting it?
Gifting transfers your basis to the recipient, they take over your original purchase price as their basis. So if they sell, they pay tax on the full gain from your original purchase. Gifting doesn't eliminate the gain; it shifts who pays. The exception: if you hold the gold until death, your heirs receive a 'stepped-up basis' to the date-of-death value, eliminating all gain accumulated during your lifetime. For high-appreciation gold, holding until death is the most tax-efficient outcome.