1031 Exchange Gold and Silver Bullion Insights
Posted by Andy Gustafson on Sun, Feb 27, 2011
1031 exchanges are applicable to real and personal property including gold and silver bullion. As interests in a tenant in common real property such as a motel can be exchanged for other real property, an interest known as unallocated gold and silver bullion may be exchanged for physical gold and silver bullion and non numismatic coins.
Unallocated Gold and Silver
Precious metal refineries such as Perth Mint and other combination bullion purchase and storage facilities offer allocated and unallocated accounts. Allocated accounts hold segregated physical gold and silver identified by certified coin number or bar number. Unallocated accounts represent an interest in a pool of gold or silver holdings, not the physical material. Consequently, the unallocated is less expensive given no storage fees.
1031 Exchange of Unallocated Gold and Silver
Unallocated holdings can be converted into allocated holdings. Implying the the gold and silver holdings can be converted into the precious metal. Given the conversion is considered a sale, a capital gain is triggered that may be deferred given like-kind gold or silver is acquired within 180 calendar days.
Predominant Use
Precious metal holdings located in internationally are not 1031 eligible for metal holdings held in the United States or vice versa. If the predominant use is in Switzerland or the precious metals are held internationally for 50 percent or more of the two years prior to the sale, then to be 1031 eligible, the metals must be acquired and held internationally for 50 percent of the following two years.
Revenue Rulings
Revenue Ruling 79-143, 1979-1C.B. 264 disallowed a 1031 exchange of U.S. $20 gold coins (numismatic-type coins) for South African Krugerrand gold coins (bullion-type coins) concluding:
"Although the coins appear to be similar because they both contain gold, they actually represent totally different types of underlying investment, and therefore are not of the same nature or character. The bullion-type coins, unlike the numismatic-type coins, represent an investment in gold on world markets rather than in the coins themselves. Therefore, the bullion-type coins and the numismatic-type coins are not property of like kind."
Revenue Ruling 82-96 allowed the exchange of gold bullion for Canadian Maple Leaf gold coins concluding:
"Because the value of the gold content in each Canadian Maple Leaf gold coin greatly exceeds its face value, it is not a circulating medium of exchange. Therefore, the Canadian Maple Leaf gold coin is property rather than money for purposes of section 1031(a) of the Code. Because the Canadian Maple Leaf gold coins are bought and sold for their gold content, they are bullion-type coins. Therefore, the nature and character of gold bullion and the Canadian Maple Leaf gold coins are the same, and they qualify as 'like-kind' property as that term is used in section 1.1031(a)-1(b) of the regulations."
Conclusion
There are variety of sale and purchase transactions of gold and silver bullion that qualify for 1031 tax deferred exchanges. Each has a set of facts that must be analyzed for like-kind nature and character. Silver bullion cannot be exchanged for gold bullion given they are not like kind. Unallocated gold bullion can be exchanged for gold bullion coins given they are non numismatic.
Are you considering converting unallocated gold or silver bullion into physical gold or silver? Why not defer the gain with a 1031 exchange? Want to learn more?
The Certified Exchange Specialist on staff have been accommodating forward and reverse 1031 exchanges for professional advisors and their domestic and non resident alien individual and corporate clients since 2003. Learn why to engage the qualified intermediary services of Atlas 1031 Exchange.
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