TheStreet: ETFs Are Not Completely Tax-Free, Investors Should Note Tax Rules for Different Products

TechFlow News, July 26, according to TheStreet, although ETFs are typically more tax-efficient than mutual funds due to the in-kind creation/redemption mechanism (In-Kind Creation/Redemption) and lower turnover rates, "high tax efficiency" does not mean "tax exemption". There are significant differences in the tax treatment of different types of ETFs, and investors need to plan based on their holdings and account types.

The report states that ETFs investing in physical gold and silver may be taxed at the collectibles tax rate in the US; commodity ETFs using futures contracts usually apply the "60/40" tax rule, meaning 60% of capital gains are taxed at the long-term rate and 40% at the short-term rate, regardless of the actual holding period; returns from some currency ETFs may be taxed as ordinary income, while leveraged and inverse ETFs, due to higher turnover rates, may also apply the "60/40" rule.

TheStreet suggests that investors can reduce overall tax costs by reasonably allocating taxable accounts and tax-deferred accounts, holding ETFs long-term, utilizing tax-loss harvesting (Tax-loss Harvesting), and donating appreciated ETF shares, among other methods.