TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, December 11, 2013

WSJ: A Tax Silver Lining to Losses on Gold

GoldWall Street Journal Tax Report:  A Silver Lining to Losses on Gold, by Laura Saunders:

Gold bugs have had a bad year—having watched the metal slide more than 25%.

But there could be a silver lining for investors who bet on gold through [exchange traded] funds. ... Uncle Sam lets taxpayers use losses to offset profits on other investments—which are abundant, given the market's recent climb. Within certain limits, it is even possible to take the losses, use them to shelter other gains, and then repurchase the investment. The rules can be tricky, however, especially with ETFs holding gold bullion. ... Here is what to know as you make year-end moves.

If gold has lost its glitter for you, consider taking losses before the end of the year in order to use them on your 2013 tax return. They qualify as "short-term" losses if the fund has been held a year or less, and "long-term" otherwise, which can affect how a taxpayer uses them to offset gains from selling other investments.

After short-term and long-term losses and gains are netted against each other, up to $3,000 of remaining losses can offset "ordinary" income such as wages. Losses above that carry forward for use in future years.

If you have losses in SPDR Gold Shares or funds like it, but still want to hold gold, the tax treatment gets murkier because of what is known as the "wash sale" rules.

These rules dictate that investors can't deduct losses immediately if they buy a security—a stock, for example—within 30 days either side of selling it at a loss. That helps prevent people from gaming the system. ... The rules apply if the buyer is purchasing the same security ... or one that is "substantially identical."

There is a question, however, about whether ETFs such as SPDR Gold Shares and iShares Gold Trust fall under these rules.

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