If you are still scrambling to get your tax filings ready for Uncle Sam, be sure to remember that commodities-related exchange traded fund positions are not taxed liked other assets.
ETFs track a basket of securities, and investors are taxed based on the type of underlying assets they are exposed to. Most investors will file taxes on short-term gains, which are taxed at one’s ordinary income rate at a maximum 39.6% for single filers, and on long-term gains, which for most comes at 15%, reports John Waggoner for USA Today.
However, if an ETF is backed by physical bullion, such as the SPDR Gold Shares (NYSEArca: GLD), the government sees the precious metals ETF as a physical investment, so physically backed ETFs are taxed as a collectible, with a maximum capital gains rate of 28%.
On the other hand, commodity ETFs that hold futures contracts, such as the popular the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate oil futures, follow a so-called 60/40 tax regiment. Specifically, futures-based ETFs have a 60% long-term gains and a 40% short-term gains, regardless of how long an investor has held onto these ETFs.
Moreover, at the end of the year, the futures-based ETFs must “mark to market” all outstanding contracts and treat them as if the fund sold those contracts, and investors would realize those gains for tax purposes.
Lastly, some investors may have held an exchange traded note. Taxation of ETNs differs from that of ETFs. ETNs are a type of bond or debt security issued by an underwriting bank and subject to the credit risk of the issuer. Gains in stock, bond and commodity ETNs are all taxed at the same rate as stocks. Additionally, some currency ETFs, such as the popular suite of CurrencyShares funds, are taxed as ordinary income, no matter how long the investments are held.
For more information on ETF taxes, visit our taxes category.
Max Chen contributed to this article.