Commodity exchange-traded funds (ETF's) come in four basic flavors: 1. Metals 2. Energy 3. Currencies 4. Mixed
Commodity ETFs are also categorized by their investment approach, which determines their cost basis treatment: 1. Those that hold the physical commodity; versus 2. Those that utilize futures and swaps for exposure to the asset class.
The ETFs which hold REIT's or stocks and bonds (either foreign or domestic) are straight forward. You just report the distributions as dividends, interest, capital gains distributions, or return of capital according to the Form 1099 tax reporting form you receive from the sponsor or broker/dealer.
Click on the images below to access our Commodity ETF calculators for the stock symbols GLD, IAU, and SLV.
ETFs which hold commodities or currencies are vastly more complicated because the tax reporting vehicle is a Form K-1 or tax information statement which passes through to you each category of taxable income separately. The cost basis accounting is based on the investment method utilized within the ETF:
Commodity ETF's that hold the physical commodity Those ETF's which hold the physical commodity (e.g. gold bullion) are grantor trusts just like your revocable living trust. Anything that happens inside the trust must be reported on your individual income tax return just as if it occurred in your individual name. For instance, every time the commodity ETF sells part of its holdings to pay operating expenses of the fund, you have to report your pro-rata share of the investment expenses and capital gain or loss on your personal income tax return based on your own cost basis. An explanation of the proper tax accounting for the popular GLD ETF can be found at SPDR® Gold Shares 2008 tax info.
SPDR® Gold Shares (GLD) Calculator
iShares COMEX Gold Tr (IAU) Calculator
iShares Silver Trust (SLV) Calculator
Commodity ETFs that use futures, swaps, and forward contracts Because futures contracts, swaps, forward agreements, and foreign currency contracts are utilized by commodity/currency ETFs, the taxation is different from a normal ETF holding stocks. The tax rule for futures and forward contracts is that the contract is marked to market at the end of every tax year; 60% of the gain is long-term and 40% is short-term. For swaps, the gain is generally all short-term. Since this gain is passed through to you on your Form K-1 tax report, your cost basis changes every year, even if you don't buy or sell any more shares. Your cost basis increases by the amount of long-term and short-term gain reported on your Form K-1 each year.
Some examples of Commodity/Currency ETFs trading on U.S. stock exchanges by category:
Metals Holding Physical Commodity (Grantor Trust Treatment): ETFS Physical Palladium Shares (PALL) ETFS Physical Platinum Shares (PPLT) ETFS Physical Silver Shares (SIVR) ETFS Physical Swiss Gold Shares (SGOL) iShares COMEX Gold Trust ETF (IAU) iShares Silver Trust ETF (SLV) streetTRACKS Gold Shares ETF (GLD) Using futures and swaps (Form K-1): PowerShares DB Base Metals Fund (DBB) PowerShares DB Gold Fund (DGL) PowerShares DB Precious Metals Fund (DBP) PowerShares DB Silver Fund (DBS) ProShares Ultra Gold ETF (UGL) ProShares Ultra Silver ETF (AGQ) ProShares UltraShort Gold ETF (GLL) ProShares UltraShort Silver ETF (ZSL)
Commodities in general GreenHaven Continuous Commodity Index Fund (GCC) iShares GSCI Commodity-Indexed Trust ETF (GSG) PowerShares DB Commodity Index Tracking Fund (DBC) ProShares Ultra DJ-AIG Commodity ETF (UCD) ProShares UltraShort DJ-AIG Commodity ETF (CMD) PowerShares DB Agriculture Fund (DBA)
Currencies CurrencyShares Australian Dollar Trust ETF (FXA) CurrencyShares British Pound Sterling Trust ETF (FXB) CurrencyShares Canadian Dollar Trust ETF (FXC) CurrencyShares Euro Trust ETF (FXE) CurrencyShares Japanese Yen Trust ETF (FXY) CurrencyShares Mexican Peso Trust ETF (FXM) CurrencyShares Swedish Krona Trust ETF (FXS) CurrencyShares Swiss Franc Trust ETF (FXF) PowerShares DB G10 Currency Harvest Fund (DBV) PowerShares DB US Dollar Index Bearish Fund (UDN) PowerShares DB US Dollar Index Bullish Fund (UUP) ProShares Ultra Euro ETF (ULE) ProShares Ultra Yen ETF (YCL) ProShares UltraShort Euro ETF (EUO) ProShares UltraShort Yen ETF (YCS)
Energy Global Wind Energy Portfolio ETF (PWND) MacroShares Oil Down ETF (DOY) MacroShares Oil Up ETF (UOY) PowerShares DB Energy Fund (DBE) PowerShares DB Oil Fund (DBO) ProShares Ultra DJ-AIG Crude Oil ETF (UCO) ProShares UltraShort DJ-AIG Crude Oil ETF (SCO) United States 12 Month Oil Fund (USL) United States Gasoline Fund (UGA) United States Heating Oil Fund (UHN) United States Natural Gas Fund (UNG) United States Oil Fund (USO)
