1031 Exchange Requirements: Gold and Silver Predominant Use
Posted by Andy Gustafson on Mon, Feb 20, 2012
Gold and silver are eligible for 1031 tax deferral treatment as long as 1031 exchange requirements are satisfied. One of the 1031 exchange requirements is predominant use or location either in the United States or overseas. Internal Revenue Code (IRC) § 1031(h)(2)(A) states that “personal property used predominantly within the United States and personal property used predominantly outside the United States are not property of like kind.”
Hold Time and Predominant Use
If personal property, such as gold and silver, are held outside the United States, how long does the replacement property need to be held before relocating to the United States? Predomant use of replacement property is determined on 2-year period beginning on the date of acquisition. Once held over 50 percent of the two years the property is recognized as held either internationally or within the United States.
Examples of Gold and Silver Exchanges
Personal property held in a trade, business or investment is eligible for capital gains tax deferral. Given the capital gains on the sale of personal property is 28%, it makes sense to initiate 1031 exchanges to defer the gain. Examples of gold and silver exchanges include:
- Mexican gold coins for Austrian gold coins per Rev. Rul. 76-214, 1976-1 C.B. 218
- Gold bullion for gold Canadian Maple Leaf coins per Rev. Rul. 82-96 and Ltr. Rul. 8202101
- South African Krugerrand gold coins for gold bullion bars per Ltr. Rul. 8117053.
Examples of precious metal exchanges not permitted include:
- Gold bullion for silver bullion per Rev. Rul. 82-166, 1982-2 C.B. 190
- Numismatic coins held for investment are not like-kind with bullion coins held for investment per Rev. Rul. 79-143, 1979-1 C.B. 264
- U.S. Double Eagle gold coins not like-kind for Swiss francs per Ltr. Rul. 200901020.
Definition of United States and U.S. Taxpayer
For purposes of IRC 1031, the United States is defined as the states and District of Columbia. The Virgin Islands qualify if income is earned from sources within the Virgin Islands or the taxpayer has a trade or business there or files a joint return with a taxpayer who does. U.S. taxpayers can exchange real property located in the United States for real property located in Guam and the Northern Mariana Islands.
A U.S. taxpayer is defined as an individual who is a citizen or resident of the United States per Regulation § 1.1502-13(c)(7).
Proper Planning
When considering whether a 1031 makes sense for gold and silver, not only must gold bullion be exchanged for gold bullion and not gold for silver, but also understanding the location of both the old and the new property is critical to satisfying the 1031 exchange requirements.
Let us help you by listening and responding to your questions. Click the button below to ask your question.
