Understanding the Costs and Tax Implications of Holding Precious Metals
For many investors, precious metals such as gold, silver, and platinum represent stability in uncertain times. They’re tangible, widely recognized, and have held value across centuries. Whether used as a hedge against inflation or as a portfolio diversifier, physical metals can feel reassuring compared to paper assets.
However, as with any investment, it’s important to look beyond the appeal of gold bars and silver coins. Precious metals carry unique tax considerations, transaction costs, and estate planning implications and for Washington residents, new state tax rules beginning in 2026 add another important layer to consider.
Understanding these details can help ensure your investment decisions align with your broader financial goals.
The Basics of Holding Precious Metals
Investors typically gain exposure to precious metals in one of two ways: physical ownership or financial instruments.
Physical ownership includes coins, bullion, or bars stored in safes or depositories. This approach offers direct control but comes with added responsibilities such as storage, insurance, and liquidity considerations.
Paper ownership, such as ETFs or mutual funds that track metal prices, allows investors to participate in price movements without taking possession of the metal itself.
While physical ownership appeals to those who value tangible assets, it’s especially important to understand both the ongoing costs and the tax consequences when buying and selling.
Federal Tax Implications When Selling Precious Metals
Precious Metals Are Treated as “Collectibles”
For federal tax purposes, the IRS classifies most physical precious metals—gold, silver, platinum, and palladium—as collectibles.
Long-term gains (assets held longer than one year) are taxed at a maximum 28% federal rate, higher than the standard 15% or 20% long-term capital gains rates that apply to most stocks and mutual funds.
Short-term gains (held one year or less) are taxed at ordinary income tax rates, which may be even higher.
Reporting and Recordkeeping
Sales of precious metals must be reported on Form 8949 and Schedule D of your federal tax return. Certain transactions may also trigger a Form 1099-B from the dealer.
Because physical metals are often purchased through private dealers or with cash, maintaining detailed records is critical. Without proof of your purchase price (cost basis), the IRS may treat the entire sale price as taxable gain.
A Practical Example
Consider this simplified scenario:
In 2015, an investor purchased 10 ounces of gold bullion for $12,000.
In 2025, the gold is sold for $23,000.
The $11,000 gain qualifies as a long-term collectible gain.
At the 28% federal collectibles rate, the tax owed is $3,080, before any applicable state taxes.
Even with strong appreciation, a significant portion of the gain goes to taxes—highlighting the importance of planning before selling.
New Washington State Tax Rules Beginning January 1, 2026
Historically, Washington excluded certain precious metal transactions from retail sales tax. This changes in 2026.
What’s Changing?
Under Engrossed Senate Substitute Bill (ESSB) 5794 (Section 105), Chapter 423, Laws of 2025, sales of precious metal bullion and monetized bullion are no longer excluded from the definition of a wholesale or retail sale.
Effective January 1, 2026, these transactions become taxable in Washington.
How Are These Sales Taxed in Washington?
Retail Sales to End Consumers
When precious metal bullion or monetized bullion is sold to an end consumer:
The seller must collect Washington retail sales tax
The seller’s gross income is subject to Business & Occupation (B&O) tax under the Retailing classification
This means Washington buyers may face sales tax at the time of purchase, increasing the total cost of acquiring physical metals.
Key Definitions Under Washington Law
Precious metal bullion: Metals such as gold, silver, platinum, rhodium, or palladium that have been smelted or refined, where value depends on metal content rather than form.
Monetized bullion: Coins or forms of money made from precious metals that are or have been used as legal tender by the U.S. or a foreign government. This does not include coins sold for jewelry or artistic manufacturing.
Hidden and Transactional Costs
Taxes are only one part of the equation. Physical metals often involve additional costs that reduce net returns.
Dealer Spreads
Dealers typically sell metals above spot prices and buy below spot prices. This bid-ask spread can range from 2% to 10% or more depending on market conditions and product type.
Pawn Shops and Alternative Buyers
Pawn shops and “cash-for-gold” businesses may offer convenience but often pay significantly below market value and may lack transparency or proper documentation—complicating both pricing and tax reporting.
Storage and Insurance
Secure storage and insurance costs may seem minor annually, but over time they compound and reduce overall returns.
Precious Metals in Estate Planning
Because precious metals are tangible assets, they raise unique estate planning considerations.
Step-Up in Basis
Inherited metals typically receive a step-up in cost basis to fair market value at the date of death, potentially reducing future capital gains taxes for heirs.
Documentation and Access
Heirs must know the metals exist, where they’re stored, and how to access them. Listing metals in a will or trust and maintaining proper documentation helps avoid confusion or disputes.
Trust Planning
In some cases, holding metals in a trust can simplify transfer, enhance privacy, and ensure assets are distributed according to your wishes.
Strategic Considerations for Investors
Precious metals can play a role in diversification, but it’s important to evaluate their after-tax and after-cost returns, especially given:
Higher federal collectibles tax rates
Ongoing storage and transaction costs
A thoughtful approach may include:
Limiting physical metals to a modest portion of your portfolio
Balancing tangible assets with liquid, income-producing investments
Reviewing tax and estate implications regularly with an advisor
Precious metals can be a meaningful component of a diversified financial plan—but the details matter. Federal tax treatment, dealer spreads, storage costs, and now new Washington state tax rules all affect net returns.
Before buying, selling, or passing down physical metals, it’s important to understand the full financial impact. Working with a fiduciary advisor can help ensure your precious metals strategy fits within your broader investment, tax, and estate planning goals—today and in the future.