Low gold prices provide loss harvesting opportunity
The price of gold has been in the doldrums for the past few years, and it may be that most of those who own gold have an unrealized loss on their gold investments such as the SPDR Gold Trust (GLD).
It should therefore be welcome news to these investors that the wash sale rules don’t apply to gold. Harvesting a loss now might make sense especially for those who think that gold prices will return to higher prices.
The wash sale rule that is in the Internal Revenue Code (Sec. 1091) only applies to losses incurred upon the disposition of stock and securities. Therefore, the wash sale rules shouldn’t apply to physical gold.
For federal income tax purposes, SPDR Gold Trust is treated as a grantor trust. As such, the investor in SPDR Gold Trust is treated as owning physical gold.
There seems to be no argument that any long-term gains recognized on the SPDR Gold Trust exchange-traded fund would be subject to the 28% tax rate on collectibles, not like regular long-term gains at 20%. Because SPDR Gold Trust investors shouldn’t be treated as owning stock or securities for tax purposes and instead are treated as owning gold, the wash sale rule shouldn’t apply to any losses suffered upon the sale of GLD.
Therefore, an investor should be allowed to deduct any loss on the sale of SPDR Gold Trust even if the investor purchases new shares of GLD within 30 days before or after the disposition of those shares.
Thus an investor could harvest their loss on gold without worrying about being out of the position for more than 30 days. It could also make a lot of sense for investors to take losses in SPDR Gold Trust and immediately reinvest in one of the other vehicles that might be better positioned tax wise if or when gold prices move higher.
There are also exchange-traded notes on gold that can be taxed more favorably when held long term because tax wise they are treated as debt.
These ETNs are taxed “regularly,” similar to the taxation of any other security. The fact that the underlying investment is gold doesn’t change the instruments taxation as it does with investments in the GLD grantor trust.
Robert Gordon is president of Twenty-First Securities.