Learn ETF Tax Rules to Jumpstart Tax Season | ETF Trends


Updated version

One of the benefits of exchange traded funds (ETFs) is their tax efficiency. However, this is not to be mistaken for, "You’ll never pay taxes with ETFs." Most ETFs are subject to capital gains tax rules, which helps you during tax season. Here’s how, according to Elaine Floyd of Advisor Perspectives.

  • You don’t pay taxes on your ETF until it is sold.
  • The ETFs that you have longer than one year are taxed at 15% or 5% for low-income investors.
  • You can use your ETF gains to offset your losses.

However, there are a few ETF sectors that don’t follow the capital gains tax rules. They are:

  • Currency ETFs – These are built similar to grantor trusts, which means that shareholders are open to tax liabilities on the income generated from them. Examples include the CurrencyShares British Pound Sterling (FXB) and the CurrencyShares Euro (FXE).
  • Metal ETFs – Tax rates for these ETFs that hold gold or silver bullion can be as high as 28% because they are considered collectibles. Examples include the streetTRACKS Gold (GLD) and the iShares Silver Trust (SLV).
  • Futures ETFs – These can get complicated. Futures ETFs follow mark-to-market rules that tax unrealized gains at the end of the year. Gains or losses are treated as 60% long-term and 40% short-term regardless of how long the contracts were held. An example of this is the PowerShares DB Commodity Index Tracking Fund (DBC).

Knowing the tax rules for ETFs can help maximize the amount of money that stays in your pocket after tax season. Who doesn’t love that? 

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.