I bought some digital physical gold online 6 months ago. I would like to redeem that gold for physical to be shipped to my house. Is that a taxable event? Thanks.

[ErnieS0]

No. Redeeming gold is not a taxable event because you still own it. Taxable events are sales of assets.

The IRS says you have a capital gain if you sell the asset for more than your adjusted basis. You have a capital loss if you sell the asset for less than your adjusted basis. Losses from the sale of personal-use property, such as your home or car, aren't tax deductible.

Related Resource:

• Topic No. 409 Capital Gains and Losses

[melomaniac007]

Thank you very much for the response. Since my Gold purchase 6 months ago, I'm under water with my purchase. So if I were to redeem it to be shipped to my house I would end up with less overall Gold because I would have to sell it back to the company (One Gold) and then place a new order with a third party (Apmex) to have that gold shipped to me. The company that I bought it from uses a third party company when redeeming one's gold. Is that still not a taxable event? Thanks.

[Opus 17]

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@melomaniac007 wrote:

Thank you very much for the response. Since my Gold purchase 6 months ago, I'm under water with my purchase. So if I were to redeem it to be shipped to my house I would end up with less overall Gold because I would have to sell it back to the company (One Gold) and then place a new order with a third party (Apmex) to have that gold shipped to me. The company that I bought it from uses a third party company when redeeming one's gold. Is that still not a taxable event? Thanks.

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STOP!  And get some advice from a CPA or enrolled agent.  You may get killed by the "wash sale rule."

To start with, let's look at what you are doing exactly.  We'll suppose you bought 1 ounce of gold from #1 at $1900 per ounce.  But, company #1 apparently won't send you that 1 ounce of physical gold, it's only "on paper."  So you now sell 1 ounce back to #1 at $1700 per ounce, and buy 1 ounce of gold from #2 at $1700 which they send to your house.

Ordinarily, that is a $200 capital loss, that you can deduct.  Then, the new ounce of gold has a cost basis of $1700, and your taxable profit will depend on the price when you sell.  Suppose you sell in the future for $2000, that's a $300 capital gain.  Your overall gain from the beginning is $100, and you paid tax on a $300 gain and deducted a $200 loss, so you end up being taxed on the correct overall gain of $100.

However, you must consider the wash sale rule.  This is a rule that says that if you sell an investment at a loss, and buy "substantially the same" investment within 30 days, you can't deduct the loss.  

You can add the loss to the price of the new investment.  That means that, for tax purposes, the new gold you buy from #2 at $1700 has a cost basis of $1900 (the cost plus your $200 loss from company #1), so if you sell it at $2000, your taxable gain is the same $100.  So no harm, no foul, right?  In this simple case, yes.  But in more complicated cases, or with trades that span multiple years, you can create a nightmare for yourself.

See this extreme case.

https://www.forbes.com/sites/shaharziv/2021/03/26/robinhood-trader-may-face-800000-tax-bill/?sh=6387...

At a minimum, you need to wait at least 30 days from the time you sell back your purchase to company #1 before you buy replacement gold from company #2.  

You may want to get some advice from a professional tax advisor. 

(Note that if company #1 would simply send you the gold you bought, that has no tax consequences at all.  You would pay tax on your profit or deduct a loss whenever you sell it.  What you can't do is take a loss on an investment and replace it with the same investment without waiting.)

[melomaniac007]

That's the answer I was looking for! Holy moly thank you for that detailed response. If I waited after the 30 days and then rebought my gold and took that loss from the first purchase would I then be able to deduct if from another category that I had a gain on like Crypto? 

[Opus 17]

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@melomaniac007 wrote:

That's the answer I was looking for! Holy moly thank you for that detailed response. If I waited after the 30 days and then rebought my gold and took that loss from the first purchase would I then be able to deduct if from another category that I had a gain on like Crypto? 

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The wash sale rule applies to "substantially similar" investments.  If you sell your gold at a loss, there is no requirement to wait 30 days before buying a different investment, such as a company stock or virtual currency.  

[melomaniac007]

Yeah I understand that part. I'm just asking if I take a loss on the Gold can I deduct that from a different investment like crypto that I received a gain on? Thanks.

[Opus 17]

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@melomaniac007 wrote:

Yeah I understand that part. I'm just asking if I take a loss on the Gold can I deduct that from a different investment like crypto that I received a gain on? Thanks.

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All your investment losses and gains are reported together on Schedule D (except for losses that are disallowed by the wash sale rule).  Long term losses can offset long term gains (investments held more than one year) and short term losses can offset short term gains (held 1 year or less).  But short term losses don't offset long term gains or vice versa.

[melomaniac007]

That's the answer I was looking for! Thanks man. Have a good day!