Taxes could sting gold bugs

A precious-metals exchange traded fund (ETF) and a 1952 Mickey Mantle baseball card might seem worlds apart, but they are one and the same to the IRS.

ETFs backed by precious metals have gained popularity as prices have risen. Gold, for example, climbed about 23 percent this year on inflation concerns.

But gold bugs who have cashed out might be surprised this April 15 to find that gains on these vehicles are taxed as collectibles, just like gold coins.

"Tax consequences are some of the least considered factors when people invest in ETFs based upon commodities," says Brad Zigler, editor of HardAssetsInvestor.com.

The collectible tax rate for assets held more than 12 months is 28 percent. The rate applies to the highest income brackets, while people in lower brackets pay their usual income-tax rate, says David T. Moldenhauer, partner with law firm Clifford Chance US.

By contrast, long-term capital gains — on shares of stock, for instance — are taxed at a maximum rate of 15 percent.

George Milling-Stanley, spokesman for the World Gold Council, creator of streetTRACKS Gold Shares, says the tax rules predate these types of ETFs. "This is an anomaly that Congress has created and only Congress can fix."

If high taxes are a worry, gold-loving investors have other options. ETFs backed by futures contracts, such as PowerShares DB Precious Metals (DBP), are taxed at a maximum rate of 23 percent. Or investors can buy shares in gold miners, such as Barrick Gold (ABX), which are taxed at capital-gains rates.