If a loved one has passed on, you may have inherited some of their assets. If you have inherited gold bullion, coins, or jewelry, you may be considering selling it, but now you want to know: is inherited gold taxable?
According to federal law, you can keep inherited gold tax-free if the estate's total value does not amount to more than $11.7 million. If you choose to sell inherited gold, it will be taxed up to 28% on capital gains made in the period between the testator's passing and the sale of the gold.
With the current price of gold reaching an all-time high of $2084.88 per oz in August 2020, you may well be thinking of selling inherited gold to provide much-needed liquidity.
Whether you keep the inherited gold or sell it, and what the current price of gold is, will affect whether you have to pay tax and how much. So what should you know about inherited gold and taxes?
Inherited Gold is Taxable Depending on What You Do With It
You can own gold in many forms, such as gold bullion, gold coins, gold jewelry, and electronic forms such as Gold Exchange Traded Funds (ETFs), sovereign gold bonds, deposits under gold monetization schemes, and units of gold saving funds.
However, gold is gold no matter what form it is in and counts as a capital asset for most tax purposes.
We advise checking with a certified public accountant, as the rules surrounding taxes may change, state capital gains taxes vary, and your tax bracket also makes a difference.
The Tax Laws Applicable to Keeping Inherited Gold
If you inherit gold, an assessor will appraise it to assess fair market value when the testator or testatrix (person leaving the inheritance) dies. The IRS considers this value to be the cost basis for inherited gold.
The IRS defines fair market value as the price at which an asset would change hands, with a willing buyer and willing seller, and the most usual market where a seller would offer the asset for sale to the public.
This value counts toward the amount of money you can inherit without having to pay taxes.
At a federal level, this amount is $11.7 million for individuals and $23.4 for married couples, and you will not be taxed if the value of your inheritance is below this amount.
If the value of your inheritance is over this amount, the IRS will tax you on the excess.
The following states have local inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. State law usually excludes spouses and some other heirs from paying inheritance taxes under state law.
The Tax Laws Applicable to Selling Inherited Gold
If you sell inherited gold, an assessor will once more appraise the gold to determine fair market value due to the constant fluctuations in the price of gold. This appraisal takes place on the day that you sell the gold.
If the gold has gained in value since the first appraisal to determine the cost basis, you will be liable for taxes on the additional liquidity you will receive from the sale of the gold. This gain is known as a capital gain.
The IRS considers gold and precious metal to be collectibles for income tax purposes and taxes them at a maximum of 28% when you sell them. Therefore, you will pay capital gains taxes of up to 28% on any profit you make from the sale of inherited gold.
The collectibles designation applies to most investment-grade gold and silver, including:
- Precious metal numismatic coins, wafers, bars, and precious metal bullion coins
- Precious metal rounds and commemorative coins
- Precious metal certificates
- Physical-backed Exchange Traded Funds such as the GLD
- Closed-end funds
The IRS generally taxes securities tied to precious metals as securities.
If you hold the collectibles for less than a year, you will be taxed on any capital gains as ordinary income, which is considered short-term capital gains.
If you hold the gold for more than a year before you sell it, and you fall into a federal tax bracket of 28% or higher, i. e., the 33%, 35%, and 39.6% tax brackets, you will have to pay tax at a rate of 28%.
The IRS taxes short-term gains on precious metals at ordinary income rates. The IRS will tax your profits from the sale of collectibles at your regular rate if you are in a lower tax bracket.
The tax is not immediately taken out upon your selling the gold, and you are therefore responsible for reporting it to the IRS at the end of the tax year using Form 1040, Schedule D.
If the price of gold has dropped when you sell the inherited gold than it was when you inherited, i. e. if the second appraisal is lower than the first, you will not have to pay taxes on its sale.
You will not have to pay taxes because the IRS will deem you to have made a capital loss, and it can count toward a tax deduction.
You can subtract fees that you pay on the sale of gold from any calculation of profit.
Reporting on the Sale of Inherited Gold
If you sell gold for profit anywhere in the United States, federal law requires that you report any profit on your income tax return. Certain circumstances require a dealer to report the acquisition of precious metals by filing form 1099-B with the IRS.
Such reporting helps the IRS to determine whether sellers are correctly reporting their taxable income. The International Council for Tangible Assets (ICTA) has issued guidelines on which precious metals transactions dealers must report to the IRS.
As these are not a ruling but only guidelines, the IRS does not have to follow them, and we, therefore, recommend that you check with a tax professional.
Currently, items that trigger the requirement to file Form 1099-B include 25 or more 1oz Gold Krugerrand, Gold Maple Leaf, Gold Mexican Onza coins, and gold bars of 1 kg or 1,000 troy ounces. The sale of American Gold Eagle coins does not trigger this requirement.
Tax Regulations Around The Sale of Gold Jewelry
Gold jewelry is also considered a collectible, and the same taxes apply to its sale as the sale of bullion. You must also report any profits from the sale of inherited gold jewelry on your income tax return.
However, current laws do not require that dealers report jewelry acquisition, even if it is 22- or 24-carat bullion-grade or in quantities above those applying to coins and bars.
This legal loophole makes investment-grade gold jewelry a discreet and portable asset. If you have inherited high-grade gold jewelry, hang onto it for as long as possible, especially if you need to cross international borders.
If you have inherited gold, you will probably not be taxed on it if you keep it unless you live in certain jurisdictions or have inherited an amount exceeding $11.7 million for individuals or $23.4 for married couples.
If you sell it within a year of inheriting it, you will be taxed as if it is ordinary income. If you sell it after a year, you will be taxed at a rate of 28% if you fall into a tax bracket over this threshold or at your regular rate if your tax bracket does not exceed this threshold.
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