Investors, though, need to be aware that income distributed may be taxable at ordinary-income rates. The tax treatment is based on the underlying components. Additionally, futures-based commodity ETFs are taxed up to 60% long-term gains and 40% short-term rate, and they may require a schedule K-1 form instead of the 1099 form. Precious metals ETFs are also considered “collectibles,” which may be taxed at a 28% rate. [ETF Providers Announce 2011 Capital Gains Distributions]
As always, investors should consult a tax professional with questions.
ETFs can vary in their tax efficiency. Investors that put their capital into ETFs that invest in assets other than stocks need to be especially aware. [Bond ETFs and Taxes]
“With stocks volatile and bond yields ultralow, many investors have ventured beyond these traditional portfolio ingredients and into asset classes such as commodities, MLPs and precious metals,” Christine Benz wrote in a Morningstar article. “Such investments may offer a potential diversification benefit…but they might also trigger unwelcome tax consequences that can turn into more work than you bargained for.” [ETFs and Taxes]
Tisha Guerrero contributed to this article.