If you are holding guns (or other collectibles for that matter) for investment or business purposes, you can sell the guns as part of a 1031 exchange, and use the escrowed funds to purchase other like-kind properties - more guns.
Using a Qualified Intermediary
You will want to use a Qualified Intermediary (“QI”) such as CPEC1031 to facilitate the exchange, particularly if you are selling your old guns (the relinquished property) to one party, and then (up to 180 days) later, purchasing the new guns (replacement property) from a different seller. The qualified intermediary holds the proceeds from the sales and insulates you from receiving the cash (so you don’t recognize the gains) and makes sure you receive only the new replacement property to complete your exchange transactions.
Capital Gains Tax on Collectibles
Remember that net capital gains from selling collectibles (such as coins, collector cars, artwork, stamp collections, and guns) are taxed at a maximum 28% rate. That’s much higher than the normal 20 maximum capital gains on capital asset such as real estate.
Most people conducting exchanges of personal property (chattels or non-real estate) try to purchase and close-out their 1031 exchanges quickly within the 45 day identification period, so that they don’t have to make a written designation of what replacement property they are going to receive; but if you cannot close on all of your purchases with in the 45 day identification period, then you should be sure to send the QI a written description of the new guns that you intend to buy as replacements. Your identification should be in writing, signed by you and clearly and unambiguously describe the replacement properties, such as a “double-action Smith & Wesson Model 29 .44-cal. Magnum revolver” as seen in the 1971 movie Dirty Harry Serial Number MG1031.
Most investors buy more expensive replacement properties to continue their investment…and so as to defer 100% of the gains.
- 1031 Hotline: If you have questions about 1031 exchanges of guns, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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