Other Assets

The whole unit on one sheet: commodities, precious metals, digital assets, their tax rates, and the classification lines the exam loves.

The One-Liners That Win Points

• Hard commodities are mined or extracted (gold, oil); soft commodities are grown or raised (wheat, coffee).
• Commodities are regulated by the Commodity Futures Trading Commission (CFTC), not the Securities and Exchange Commission (SEC).
• Precious metals generate NO income: return comes only from price appreciation, so they are unsuitable as a sole holding for a client needing current income.
• Precious metals are an inflation hedge (positive correlation with inflation) and a market hedge (negative correlation with equities: flight to safety).
• Physically-backed metal exchange-traded funds (ETFs) like GLD and SLV are taxed as collectibles, NOT at standard equity rates.
• Contango = futures price higher than spot (normal, reflects carrying costs); backwardation = futures price lower than spot (supply shortage or strong near-term demand).
• The U.S. dollar has an inverse relationship with commodity prices: a weaker dollar tends to lift commodity prices.
• Bitcoin fails the fourth Howey prong (decentralized, no central team), so it is a commodity regulated by the CFTC, not a security.
• Calling a token a "utility token" does not make it a non-security: the SEC applies the Howey test to economic substance.
• The Internal Revenue Service (IRS) treats all digital assets as property, never as currency, even dollar-pegged stablecoins.
• Digital assets on exchanges carry no Federal Deposit Insurance Corporation (FDIC) and no Securities Investor Protection Corporation (SIPC) protection.

Numbers to Lock In

The Howey Test (All Four Must Be Met)

• Investment of money
• Common enterprise
• Reasonable expectation of profits
• Derived from the efforts of others

If a buyer expects the development team's work to lift the token's value, it looks like a security; if the token just buys a service (like a subway token), it probably is not.

Top Gotchas

• Metal-backed ETFs get the 28% collectibles rate, not the 20% equity rate. The exam tests this distinction directly.
• Regulated futures get the 60/40 blended rate regardless of holding period, even a one-day trade; positions are marked to market at year-end.
• Bitcoin is a commodity (CFTC), not a security, but many other tokens that meet the Howey test ARE securities under SEC oversight. Classification follows function, not the label.
• Every crypto sale, exchange, or crypto-to-crypto swap is a taxable event; mining and staking rewards are ordinary income when received.
• Like-kind exchange deferral does not apply to digital assets (it is limited to real property).
• Losing your private keys means permanent loss of the assets: "not your keys, not your coins," with no recovery mechanism.

One-Breath Recap

Commodities split into hard (mined) and soft (grown) and answer to the Commodity Futures Trading Commission, not the SEC. Precious metals generate no income and hedge both inflation and falling equities; physical metal and metal-backed ETFs are taxed as collectibles at up to 28%, regulated futures at a blended 60/40 rate regardless of holding period, and producer stocks as ordinary equities. Contango means futures above spot, backwardation below. Bitcoin is a commodity because it fails the fourth Howey prong; other tokens are securities when the Howey test is met, whatever the label. The tax service treats every digital asset as property, so each swap is taxable, and exchange holdings carry no FDIC or SIPC protection.

Need more than the recap? This is a condensed summary. If it is not enough, read the full Other Assets unit for the complete lesson.