New Tax Rule for Mutual Funds: Precious Metals Income Must Now Be Counted Like Foreign Currency

The Precious Metals Parity Act sounds like something that might affect your jewelry box, but it’s actually a highly technical, behind-the-scenes adjustment to the tax code for certain investment funds. This bill changes how Regulated Investment Companies (RICs)—think mutual funds and ETFs—calculate their income for tax purposes, specifically when they deal with gold, silver, and other precious metals.

The Fine Print on Fund Income

Section 2 of the Act updates Section 851(b)(2)(A) of the Internal Revenue Code. Essentially, it tells RICs that any income they earn from precious metals must now be treated the same way as income from foreign currencies when calculating their earnings. Before this change, the tax code was explicit about foreign currencies but silent on precious metals within this specific section. This means if your mutual fund buys and sells gold to generate income, that money must be included in the fund’s required income calculations, just like money made from trading euros or yen. This is a technical move toward consistency, ensuring that income from a major asset class is properly accounted for in the fund’s compliance paperwork.

What This Means for Your Investments

For most people, this change won’t cause a ripple. It’s an administrative clarification for the folks running the funds, not a new tax on your investments. If you hold shares in a mutual fund that invests in precious metals, this change provides regulatory clarity for the fund manager. It harmonizes the tax treatment of precious metals income with that of foreign currency income, making the fund’s accounting cleaner and more consistent. The good news is that this isn't retroactive; the new rule only applies to tax years that begin after the Act officially becomes law. So, your fund managers get a clean start to implement the change.