How is the cost basis determined when selling physical gold or silver?
Executive summary
The cost basis for physical gold and silver is the purchase price plus allowable acquisition costs such as dealer premiums and storage or insurance fees; those amounts reduce the taxable gain when you sell (Investopedia) [1]. The IRS treats physical gold and silver as “collectibles,” so long-term gains may be taxed up to 28% and short‑term profits are taxed as ordinary income — making accurate cost‑basis records financially important [1] [2].
1. How cost basis is defined for physical metal — the concrete rule
For physical bullion, coins and bars, the cost basis equals what you paid for the item plus any associated, documentable costs that are part of acquiring and holding it — dealer markups/premiums, storage and certain insurance or shipping charges — because those costs are subtracted from sale proceeds to compute your taxable gain, according to Investopedia’s summary of tax practice [1].
2. Why every receipt and date matters — paperwork is your tax shield
Tax reporting depends on proof: keep receipts that show purchase price, date of acquisition, sale price and sale date, and records of extra charges like storage or insurance; Investopedia explicitly advises preserving documentation because those items reduce the gain you must report [1].
3. The tax posture: collectibles status changes the after‑tax math
The IRS classifies physical gold and silver as collectibles, not as regular capital assets, so the maximum long‑term capital gains rate for these sales can be 28% (higher than typical long‑term rates for many securities), while holding under one year makes gains taxable as ordinary income — an important context when deciding whether to sell [1] [2].
4. Common cost‑basis complications buyers face
Calculating basis can become tricky if you acquired metals in multiple lots, converted forms (e.g., melting coins to bars), or paid different premiums over time; Investopedia’s guidance to “combine these amounts” and use accurate records suggests taxpayers must track each lot’s purchase price and expenses so they can use specific‑identification or aggregated methods when computing gains [1].
5. Reporting quirks and forms — what the paperwork looks like
Available sources mention that certain transactions and products generate different IRS reporting signals; Investopedia notes specific rules around coin and bar reporting (for example, some large bars or particular coins may trigger additional filings), underscoring that sellers should confirm whether Form 1099‑B or other reports are involved in their transaction [1]. Available sources do not mention every IRS form or step in detail beyond that guidance.
6. Market context that affects the decision to sell
Price movements change the stake of accurate basis calculation: silver and gold saw large price moves in 2025 — for example, silver traded near $57–$59/oz in early December 2025 per multiple price reports — so gains or losses can be substantial and the tax consequences consequential (Fortune; Forbes Advisor; USAGOLD) [3] [4] [5].
7. Alternative viewpoints and practical advice
Tax writers and market commentators converge on the basics (basis includes premiums and holding costs, collectibles tax treatment), but practitioners differ on emphasis: some tax advisers stress using specific‑identification of lots to minimize gains, while dealers sometimes default to average‑cost or FIFO practices unless buyers specify otherwise. Available sources do not publish a consensus professional playbook for lot‑identification versus averaging — Investopedia only recommends recordkeeping and combining amounts as necessary [1].
8. Hidden incentives and where to be skeptical
Dealers and storage firms benefit when buyers overlook or under‑document premiums and storage charges; meticulous records shift tax outcomes toward the seller. Investopedia’s repeated instruction to keep receipts signals an implicit agenda: the taxpayer’s diligence, not the dealer, controls the deductible basis components [1].
9. Bottom line for sellers right now
Treat every transaction as taxable: document purchase price, premiums, storage and insurance costs now; when you sell, subtract those documented costs from sale proceeds to determine gain or loss, and remember the IRS’s collectibles tax ceiling that can make long‑term gains costlier than gains on many securities [1] [2]. If you need the exact reporting steps for your situation, consult a tax professional; available sources do not replace personalized tax advice.