Tax on Selling Scrap Gold

Most sellers assume that because a cash-for-gold shop hands over cash on the spot, the transaction is tax-free. That is the wrong assumption. The truth is that scrap gold is a collectible in the US, and the IRS taxes gains on collectibles at a flat 28% rate, not your ordinary income rate. The tax on selling gold applies only to the profit, not the full payout, and only if you sold it for more than you paid. So before you weigh a single gram, know this: you owe tax when your sale price exceeds your cost basis, and the rate is 28% for US federal purposes. Here is what records to keep, when a dealer files a form, and how the rules differ across the pond.

Here is the honest version of what you are dealing with. Scrap gold is any gold item sold primarily for its metal content rather than its value as jewellery, coinage or dental work. Most pieces are low-karat (10K-14K), often worn, broken or plated, and the seller is almost always offered a percentage of the melt value, not the full spot price. The melt value is the dollar value of the pure gold content, calculated as weight × purity × spot price. But the seller never receives that full amount. A cash-for-gold shop pays 60-80% of melt value on a good day, and less if the piece is small, low-karat, or the buyer is taking a wide margin. So the first number you need is not the spot price; it is the melt value, and then the offer as a percentage of that.

What does that mean for your tax bill? If you are selling a piece you bought for $200 and you sell it for $400, your gain is $200. That gain is taxed at the 28% collectibles rate, so you owe $56. If you sold it for less than you paid, you have a loss, and you cannot deduct it from ordinary income. The loss is a capital loss, and it offsets other capital gains, but not wages. That is the part most sellers miss: a loss on scrap gold is not a deduction against your salary. It is a capital loss, period.

The practical detail is that most sellers are not keeping records, and that is where the real cost lands. You need a receipt from the buyer showing the date, the weight, the karat, and the price per gram. You need your own note of what you originally paid for the item, or a reasonable estimate if it was a gift or inherited. If you inherited it, your cost basis is the fair market value on the date of the deceased's death, which is usually higher than what they paid. That is the step-up in basis, and it can wipe out most of your gain. But you have to prove it, and proof means a document.

The failure case is the seller who walks into a pawn shop, gets cash, and never thinks about tax again. That works until the IRS sends a letter because the dealer filed a 1099-B. The dealer is not your enemy; the dealer is reporting what they paid you, and the IRS will match it against your return. If you do not report the gain, the matching system flags it, and you owe the tax, plus penalties and interest. The penalty for not reporting a capital gain is 20% of the understated tax, plus interest. That is a much bigger number than the tax itself. So the instruction is simple: get a receipt, know your basis, and report the gain on Schedule D. If you do not know your basis, use the step-up if inherited, or estimate it as the fair market value at the time you received the item. A reasonable estimate is better than nothing, but a real receipt is better than an estimate.

One more thing before the sections below: the UK has a completely different set of rules, and the threshold is low enough that most sellers never hit it. But if you are selling a single piece of jewellery for more than £6,000, or a set of matching pieces that together exceed that, you may owe capital gains tax. The rate is 10% or 20% depending on your income tax band, and there is a marginal relief rule for proceeds just above the threshold. We will cover that in its own section, but the short version is this: the US taxes gains at a flat 28% on collectibles, and the UK taxes gains on chattels at your income tax rate, with a £6,000 exemption. Two different systems, two different thresholds, and neither one cares about the cash-in-hand moment.

So the first practical step is not to call a buyer. It is to weigh your gold at home, calculate the melt value, and then decide whether the offer is worth the tax hassle. If the gain is small, say under $100, the tax is $28, and you can decide whether the paperwork is worth it. If the gain is large, you need the records, and you need them before you sell, not after. The buyer will not ask for your cost basis, and the IRS will not ask for your receipt on the day you sell. But the absence of a question does not mean the absence of a tax. It means the burden is on you to prove your basis, and the only proof is a document you kept.

Rate Depends on Holding Period

In the United States, the IRS treats scrap gold as a collectible, not as currency and not as an investment with preferential long-term rates. The tax rate on collectibles is a flat 28% for long-term capital gains, which is higher than the 15% or 20% rate on stocks and bonds. This is the gold collectibles tax rate, and it applies to any gain on the sale of gold coins, bullion, or jewellery held for more than one year. If you held the gold for one year or less, the gain is taxed at your ordinary income tax rate, which for most people is higher than 28%. So the holding period matters, and it matters a lot. A short-term gain on scrap gold is taxed as ordinary income, which can be 22%, 24%, 32%, or even 37% depending on your bracket. A long-term gain is capped at 28%, which is lower than the top ordinary rate but higher than the top rate on qualified dividends.

The practical consequence is this: if you are selling scrap gold that you have owned for more than a year, the 28% rate is the ceiling. If you owned it for less than a year, you are paying your marginal income tax rate, which could be higher. The IRS Topic No. 409, Capital Gains and Losses, states the collectibles rate explicitly, and it is the governing authority for this section. The gain is the sale price minus your cost basis, which is what you paid plus any improvements you made. For inherited gold, the basis is the fair market value on the date of the decedent's death, which is a step-up and often eliminates most of the gain. For gifted gold, the basis is the donor's basis, which carries over, so you could inherit a large gain if the donor held it for a long time.

Step-Up in Basis for Inherited Gold

Here is the failure case: you sell a gold ring you inherited from your grandmother. She paid $50 for it in 1970. You sell it for $1,000. Your basis is the fair market value on the date she died, not what she paid. If she died in 2020 and the ring was worth $800 then, your gain is $200, not $950. That is the step-up in basis, and it is the single most valuable tax break in this area. But you have to prove it, and proof means a copy of the death certificate and an appraisal or a receipt. If you do not have that, the IRS will assume your basis is zero, and you will owe tax on the full $1,000 at 28%, which is $280. That is a painful price for not keeping a piece of paper.

So the instruction is this: before you sell any scrap gold, write down what you paid for it, or get a valuation from the date you received it if it was a gift or inheritance. Keep that note with your tax records. If you cannot prove the basis, use the step-up if you inherited it, and use a reasonable estimate if you do not have a receipt. The IRS allows a reasonable estimate, but it has to be reasonable, and you have to be able to defend it. A receipt is a defence; a guess is not.

The $600 Reporting Threshold

The dealer's obligation to report a sale to the IRS is separate from your obligation to report the gain. A Form 1099-B is the broker reporting form, and it is filed when a dealer pays you $600 or more for precious metals in a single transaction or a series of related transactions. The $600 threshold is not a guess; it is in the IRS Instructions for Form 1099-B, and it applies to sales of gold, silver, platinum, and palladium bullion and coins. If the dealer pays you $599.99, they are not required to file, but they can file voluntarily. If they pay you $600.00 or more, they must file, and they must send you a copy of the 1099-B by January 31 of the following year.

The practical problem is that most scrap gold sales are below the $600 threshold. A single 14K ring weighing 5 grams has a melt value of about $225 at $2,400 per troy ounce. You will not hit $600 unless you sell a substantial amount of gold, which means the 1099-B is the exception, not the rule. But the absence of a 1099-B does not mean the gain is not taxable. It means the IRS does not know about it automatically, and you have the choice to report it or not. The honest choice is to report it, because the failure to report a capital gain is a matching problem only if the dealer filed a 1099-B. If no 1099-B was filed, the IRS has no automatic way to know, but that does not make the gain tax-free. It makes it a matter of your conscience and your records.

What to Do If You Get a 1099-B

The failure case is the seller who receives a 1099-B for a sale of $600 or more and ignores it. The IRS receives a copy, and the matching system flags the return if the gain is not reported. The penalty is 20% of the understated tax, plus interest, and the understatement can be large if the basis is zero. So if you get a 1099-B, you must report the sale, even if the gain is zero. You report it on Schedule D, and you attach a statement explaining the basis. If you do not have a receipt, you use the step-up if inherited, or you use the fair market value on the date of receipt if you cannot prove the cost. A reasonable estimate is better than a zero, and a zero is what the IRS will assume if you do not provide one.

So the instruction is this: keep every receipt from a gold buyer, even for small sales. If you sell $600 or more in a calendar year, expect a 1099-B and plan for it. If you sell less than $600, keep the receipt anyway, because the gain is still taxable and you need to prove your basis. The receipt is the only thing that turns a taxable gain into a documented one.

Jurisdiction	Tax Type	Rate	Exemption / Threshold	Key Form or Rule
US	Collectibles capital gains	28% (long-term), ordinary rate (short-term)	None; all gains taxable	IRS Topic No. 409, Form 1099-B if $600+ paid
UK	Capital gains on chattels	10% or 20% (income-dependent)	£6,000 per item or set; marginal relief for proceeds £6,000-£15,000	HMRC HS294, self-assessment return
US	Dealer reporting	N/A	$600+ in a single or related transactions	IRS Form 1099-B
UK	No CGT on gambling winnings	N/A	N/A	Not applicable to scrap gold sales

The £6,000 Exemption and Marginal Relief

In the United Kingdom, scrap gold is a chattel, which is a fancy word for a tangible, movable possession. The capital gains tax gold uk rules apply when you sell a chattel for more than £6,000. That is the exemption threshold, and it applies per item or per set of items that are treated as a single asset. If you sell a single gold chain for £5,000, no CGT is due, even if you made a profit. If you sell it for £6,500, you have a gain above the exemption, and you owe tax on the gain, not the full sale price. The gain is the sale price minus your cost basis, which is what you paid for it, or the market value at the date you inherited it if it was a gift.

The rate is 10% for basic-rate taxpayers and 20% for higher-rate and additional-rate taxpayers. These are the rates for gains above the annual exempt amount, which is £3,000 for the 2024-2025 tax year. But the £3,000 is an annual exemption that applies to all your capital gains, not just gold. So if you also sold shares and made a £2,000 gain, you have used up most of your exemption, and the gold gain is taxed at your rate. The practical consequence is that most scrap gold sales are below the £6,000 threshold, and most sellers never owe a penny. But the threshold is per item, not per sale, so selling a matching set of earrings and a necklace together could push you over if the set is worth more than £6,000.

The marginal relief rule is the part that confuses people. If your proceeds exceed £6,000 but your cost is below £6,000, you use a formula: gain = 5/3 × (proceeds - £6,000). This caps the gain at a lower amount when the proceeds are just above the threshold. For example, if you sell a ring for £6,500 and you paid £1,000, the formula gives a gain of 5/3 × £500 = £833.33, which is less than the actual gain of £5,500. This relief is automatic, and you do not need to claim it; you just use the lower figure on your self-assessment return. HMRC's HS294 guidance explains this in detail, and it is the authoritative source for this section.

The failure case is the seller who sells a single piece for £6,200 and assumes no tax is due because they made a loss. That is wrong. The gain is the sale price minus the cost, and if the cost is lower, you have a gain, and the marginal relief formula applies. You must report it on your self-assessment return, even if no tax is due after the annual exemption. The deadline is the same as any capital gain: 31 January following the tax year of the sale. If you miss it, you face a late filing penalty, which starts at £100 and can grow. So the instruction is this: keep every receipt for gold you buy, and if you sell a piece for more than £6,000, work out the gain, apply the marginal relief if it helps, and report it on your return. If you are not sure, ask HMRC, because a wrong guess is your problem, not theirs.

The difference between a clean sale and a tax audit is a folder of paper. You need four things for every scrap gold transaction: the original purchase receipt or a dated valuation, the sale receipt from the buyer, a note of any costs of sale (like postage or assay fees), and a calculation of the gain or loss. The purchase receipt proves your basis. The sale receipt proves the proceeds. The costs of sale reduce your gain. And the calculation is the arithmetic that shows the IRS or HMRC exactly how you arrived at the number on your return. Without these, you are guessing, and guessing is what triggers an audit.

The practical detail is that most sellers do not have the original receipt for a gold ring they bought 20 years ago. That is fine. You can reconstruct your basis using a reasonable estimate of the fair market value on the date you acquired it. For inherited gold, use the date of death value. For gifts, use the donor's basis. For purchases, use the price you paid. If you cannot find the receipt, write down what you remember, date it, and sign it. A contemporaneous note is better than no note, and a reasonable estimate is better than a zero. The IRS allows a reasonable estimate, but it has to be reasonable, which means it has to be defensible with some evidence. A gold buyer's receipt from the date of purchase is the gold standard of evidence.

The failure case is the seller who keeps nothing and sells a piece for a $5,000 gain. Without a basis, the IRS assumes the basis is zero, and the tax is 28% of $5,000, which is $1,400. That is the price of a folder. So the instruction is this: buy a small fireproof safe or a dedicated envelope, and put every gold receipt in it. When you sell, add the sale receipt. When you file taxes, attach the calculation. The whole process takes ten minutes per transaction, and it saves you $1,400 in the worst case. That is a return on your time that no investment can beat.

Most sellers make the same five mistakes, and each one has a simple fix. The first is using avoirdupois ounces instead of troy ounces. A troy ounce is 31.1 grams, while an avoirdupois ounce is 28.35 grams. The difference is 9.7%, which means you overstate your gold's value by nearly 10% if you use the wrong ounce. The fix is to ask the buyer whether they are using troy or avoirdupois, and if they say avoirdupois, walk away. The second mistake is trusting a stamped karat without testing. US law allows a tolerance of ±0.5 karat, so a 14K stamp can be 13.5K and still be legal. The fix is to use a nitric acid test kit on a small scratch, which will tell you the true karat. The third mistake is accepting a buyer's weight without verification. The fix is to weigh the gold at home on a calibrated scale, and check the calibration with a known weight like a US coin. A nickel weighs 5 grams, and a dollar bill weighs 1 gram. The fourth mistake is mistaking gold-filled for solid gold. Gold-filled has a minimum of 1/20 of the total weight as gold, so a 10-gram gold-filled piece has at most 0.5 grams of gold. The fix is to cut into the piece or use an acid test, because gold-filled looks like solid gold to the untrained eye. The fifth mistake is selling to a buyer who does not disclose the karat or weight used in their calculation. The fix is to ask, and if they will not tell you, go somewhere else.

The failure case is the seller who goes to a cash-for-gold shop, hands over a bag of mixed jewellery, and accepts the first offer. The offer is almost always 60-80% of melt value, but the shop may use a lower karat than the stamp, a lower weight than the scale, or a spot price that is below the market. The fix is to calculate the melt value yourself before you walk in, using the formula weight × purity × spot price. Write it down, and take it with you. When the buyer makes an offer, compare it to your number. If the offer is less than 60% of melt value, negotiate or leave. If it is more than 80%, take it, because that is a good offer. The rule of thumb is that a fair offer is 70-80% of melt value for a clean, high-karat piece, and 60-70% for a low-karat or mixed lot. Anything below 60% is a rip-off, and anything above 85% is rare enough that you should double-check your math.

If you remember one thing, remember this: the melt value of your scrap gold is weight in grams × purity as a decimal × spot price per gram. That is the number that matters, and it is the floor for any fair offer. The spot price is quoted per troy ounce, so you need to convert it to per gram by dividing by 31.1. For example, if spot is $2,400 per troy ounce, the price per gram is $77.17. A 14K piece is 58.If the buyer offers you $30 per gram, that is 67% of melt value, which is low but not outrageous. If they offer you $20, that is 44%, which is a rip-off. The difference is the refining loss, which is typically 1-5% of gold content, and the buyer's profit margin, which is the rest.

The practical instruction is to walk into any gold buyer with your own calculation. Weigh the gold at home, note the karat, and compute the melt value. Take a calculator or a phone with a calculator app. When the buyer makes an offer, divide their offer by your melt value. If the result is below 0.60, walk away. If it is between 0.60 and 0.80, negotiate. If it is above 0.80, take it and walk out quickly before they change their mind. The one number that matters is the percentage of melt value they are offering, not the dollar amount, because the dollar amount depends on the spot price, which changes daily. The percentage is the constant, and it is the only number you can compare across buyers.

Every number comes from a published source, and the most important ones are the IRS Topic No. 409 for the 28% collectibles rate, the IRS Instructions for Form 1099-B for the $600 reporting threshold, and HMRC's HS294 for the £6,000 chattels exemption and the marginal relief formula. These are public documents, and you can look them up yourself. But tax law changes, and your situation is specific. A professional tax advisor who knows your income, your holding period, and your state or country of residence can tell you exactly what you owe. Ask the questions, not the answers to trust blindly.

The failure case is the seller who reads this, decides the tax is too small to worry about, and skips the reporting. That works until the IRS or HMRC sends a letter, and then the penalty is bigger than the tax. The instruction is to treat scrap gold sales like any other investment sale: keep records, calculate the gain, and report it. If you are unsure, pay a professional. The cost of a consultation is a fraction of the penalty you would pay for a mistake. The single most practical thing you can do next is to weigh your gold at home, calculate the melt value, and decide whether the gain is large enough to matter. If it is, get the records in order before you sell, not after.