"Golden" 1031 Exchanges
When someone hears 1031 exchange they think real estate, but 1031 is incredibly diverse and flexible with a little planning. One sector of 1031 exchange that has really taken off is GOLD. Yes, you can exchange gold for other gold. Why exchange gold? If it is done properly, you avoid all the taxable gains on your sale. Gold and silver are taxed at a hefty 28%. With a 1031 exchange, you can keep that 28% of your gains in your pocket to reinvest. Also, with gold there is no recapture tax as in real estate.
The premise behind the exchange is still the same. The first question would be, was the gold held for business or investment purposes? As in all 1031 exchanges, what was the intent of the investment for the owner? If the owner is continuously buying and selling, the transactions will not qualify for 1031 because it is held as inventory rather than investment.
A gold 1031 exchange does have some nuances. I refer to gold in this article, but you can also do an exchange with silver. Please note that you cannot exchange silver for gold, and vice versa. The big issue with gold is whether or not it is like-kind. Not all gold is equal in the eyes of the IRS. Gold can only qualify for 1031 if it is traded for it's metal content. So a gold coin like an American eagle can be traded for gold bullion because they are valued on their metal content. This type of exchange is referred to as a bullion to bullion exchange because it is based on the value of the metal. When I refer to bullion, I am referring to an investment in gold for the metal value.
Numismatic coins also qualify for like kind. Numismatic coins are traded and valued based on their size, circulation and rarity, not just the value of the gold. There is an intrinsic value on these coins. The bottom line is that you cannot do bullion to numismatic exchange.
Below are a few IRS rulings on exchange gold or silver.
• Gold bullion is NOT like-kind to silver bullion, Rev. Rul. 82-166, 1982-2 C.B. 190
• Gold bullion coins are NOT like-kind to collectible (numismatic-type) gold coins, Rev. Rul. 79-143, 1979-1 C.B. 264
• Gold bullion is like-kind to gold bullion coins. Rev. Rul. 82-96, 1982-1 C.B. 113.
With any 1031 exchange, the same basic rules apply. The main rules include hiring a qualified intermediary to facilitate the exchange. The QI, as they are called, will facilitate the exchange and most importantly, escrow any proceeds from the sale. A key rule is that if new gold is not immediately purchased with the cash from the sale of the relinquished gold, the funds must be held in escrow. The other two main rules include the 45 and 180 day timing rules. If a purchase has not been made after the sale, the exchanger has 45 days after the sale to identify how much, and what type of gold will be purchased. The other rule is the person doing the exchange must purchase the replacement gold within 180 days after the sale. In this rising gold market, it is not always wise to wait to purchase.
For many investors, exchanging gold is a good investment move. Changing markets offer more opportunities to reposition portfolios. If you would like more information on 1031 exchanges, please feel free to contact Dave Owens at 1031 Tax Free Strategies LLC.
Summary - Outline to Complete a Gold 1031 Exchange
1. Call 1031 Tax Free Strategies at 239-333-1031
2. Identify if the gold qualifies for 1031
3. Find a buyer or dealer to sell the gold
4. Have an Exchange agreement prepared
5. Facilitate the exchange with 1031 TFS: all proceeds go into escrow
6. Identify replacement gold within 45 days or sooner
7. Purchase replacement immediately, or within the 180 day window
8. No tax due – a savings of 28% on profits
Dave Owens, CPA, Certified Exchange Specialist, is the Managing Member of 1031 Tax Free Strategies LLCs. Dave can be reached at 239-333-1031. Gold can also be held in a self-directed IRA account. For more information on this strategy, go to www.entrustgoldira.com.