Note: With the passage of the Tax Cuts & Jobs Act of 2017, 1031 exchanges of personal property are no longer valid.
Section 1031 of the IRS tax code is a very taxpayer-friendly statute. It allows you to defer indefinitely the capital gains when you sell investment property, which can include gold, silver, and other precious metals, as long as you exchange for other like-kind properties.
1031 Exchanges of Precious Metals & Coins
In the realm of precious metals and collector coins, there are two primary categories:
- Numismatic Coins have value above their weight. They have value because they are unique from a historical or artistic perspective.
- Bullion Coins are valued because of their content or weight. They do not have historical or artistic significance.
What are Not Like-Kind Coins & Metals?
Here are some examples of what is not like-kind when it comes to coins:
- Coins for Currency. Selling your coins for cash is not allowed in a 1031 exchange.
- Coins for Real Estate. Coins and real property are not like-kind.
- Numismatic Coins for Bullion Coins. As we discussed earlier, numismatic coins are categorized differently than bullion coins, and are not like-kind.
- Coins with differing metal contents. For example, gold bullion and silver bullion are not like-kind. These two metals are different and primarily used in different ways.
What is Like-Kind?
Now that we know what is not considered like-kind property when it comes to precious metals, let’s define what you can exchange in a 1031:
- Bullion Coins of the same metal type. For example, a gold bullion coin and another gold bullion coin are like-kind. The grade and quality does not matter. What matters is the nature and character of the coins.
- Pure gold bullion for gold bullion coins. Pure gold bullion that is not in coin form is considered like-kind with gold bullion coins.
Gold Numismatic Coins & Silver Numismatic Coins
One of the most common and difficult to answer questions when it comes to 1031 exchanges involving precious metals is:
Are gold numismatic coins like-kind to silver numismatic coins?
The jury is out on this one. There is no bright line rule or case that settles this question. Many tax professionals have argued that they should be like-kind because they are valued by artistic, historical content. To back this up, they have pointed to other cases where 1031 has applied. For example, FCC licenses on a television station are considered like-kind to FFC licenses on a radio station. The nature of these licenses is basically the same.
Others have argued that these coins are not considered like-kind, pointing to other property examples as evidence. For example, animals (livestock, etc.) of different sexes are not considered like-kind. Likewise, artworks of different mediums (a painting and a sculpture) are not considered sufficiently similar (for Section 1033 purposes). In the realm of intangible personal property (copyrights), a copyright on a novel is not considered like-kind to a copyright on a song.
Minneapolis Qualified Intermediaries
Given all this information, can we exchange a gold numismatic coin for a silver numismatic coin? Maybe. Also in question is what to do with coins of mixed metals such as copper and gold coins? There is no bright-line answer. It will depend heavily on the particular coins in question and your specific circumstances.
Give us a call today to discuss your options for exchanging your precious metals under section 1031 of the tax code 612.643.1031.