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Are Trading Coins a Taxable Event?
RichR
Posts: 3,920 ✭✭✭✭✭
Here's a question...if I trade/exchange two four-coin platinum sets of one year for a single set of another year, plus another platinum coin of a third year, would this a taxable event?
What would be the real world handling of this between two dealers?
What would be the real world handling of this between two dealers?
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In case anyone's interested, the specifics are as follows: I have a quantity of 1997 Proof plats that I'd like to trade for 2006 & 2007 plat proof coins. So it wouldn't exactly be a one-for-one exchange...more like a 1.5 for 1 exchange.
Q2: Doubt they'd even keep a record of it let alone report it as required below.
Best case: No. One basis gets transferred to another.
``https://ebay.us/m/KxolR5
One of the few good things about PA.
<< <i>It's about the same as exchanging a roll of statehood quarters at the bank for a ten dollar bill, isn't it ? >>
In a way it's not.
The exachange of roll of quarters for a $10 bill is just an exchange of money. But if you exchanged the roll of quarters for $12, and you only had $10 in the roll of quarters (tax basis is $10 from which income is calculated.) you would have a taxable event.
In the case of the U.S. platinum coins, if you exchange them for other U.S. platinum coins, there is no tax even if the coins you get are worth more than what you paid for the coins you traded. The new coins would have the same tax basis and no tax would be due to the government.
``https://ebay.us/m/KxolR5
``https://ebay.us/m/KxolR5
If you are trading numismatic items [platinum with a date premium] for non numismatic items [platinum with no date premium], then you have a taxable event. When people trade rare coins for 'bullion', they have to ensure there's enough of a premium over melt associated with the 'bullion' to make it numismatic - that's why generic MS65 [and now MS66] saints are in such demand.
If you really need to know, I suggest asking a real accountant who will back you up in any dispute with the IRS rather than relying upon chatroom advice.
Wondercoin
Thanks to everyone who replied...
Worse case scenario, I believe my tax liability would be a few hundred dollars...$1,000 tops...in the specific deal I'm mulling over...so we're not talking big bucks here.
But having never done a swap before...this just popped into my head last night in bed.
...which as the son of a CPA, I don't do
Right...I'll trade you this $100 Plat coin...for that $100 Plat coin...plus that $50 one over there.
All legal tender...thank you very much.
<< <i>There is no sales tax in PA on coins or bullion!
One of the few good things about PA. >>
There's still a federal income tax in PA and probably a state income tax.
No Way Out: Stimulus and Money Printing Are the Only Path Left
Read prior threads (do a search) on "like kind exchange" and "patriot act"
It was all discussed here in great detail.
As long as your coins are worth a 50% premium to bullion (you can bend that 50% a little bit) you can trade for other coins worth a 50% premium to bullion and defer the capital gains tax without any apprehension. However, in order to do so, you are required to file a certain IRS form detailing the like-kind exchange with your income tax returns.
In reality, many do not file this form but it does becomes a substance versus form issue. Small transactions is less of a concern than large concern.
There is no substitute for getting competent tax advice. Sadly, many CPAs do not know this subject matter well and even less attorneys even have a clue about how to file the appropriate tax forms for like-kind exchange.
I know this as I happen to be a CPA and am married to an attorney.
LINK
Like-Kind Exchanges Under IRC Code Section 1031
FS-2008-18, February 2008
WASHINGTON — Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.
The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. If you receive cash, relief from debt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.
This fact sheet, the 21st in the Tax Gap series, provides additional guidance to taxpayers regarding the rules and regulations governing deferred like-kind exchanges.
Who qualifies for the Section 1031 exchange?
Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.
What are the different structures of a Section 1031 Exchange?
To accomplish a Section 1031 exchange, there must be an exchange of properties. The simplest type of Section 1031 exchange is a simultaneous swap of one property for another.
Deferred exchanges are more complex but allow flexibility. They allow you to dispose of property and subsequently acquire one or more other like-kind replacement properties.
To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction). Rather, in a deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property. Taxpayers engaging in deferred exchanges generally use exchange facilitators under exchange agreements pursuant to rules provided in the Income Tax Regulations. .
A reverse exchange is somewhat more complex than a deferred exchange. It involves the acquisition of replacement property through an exchange accommodation titleholder, with whom it is parked for no more than 180 days. During this parking period the taxpayer disposes of its relinquished property to close the exchange.
What property qualifies for a Like-Kind Exchange?
Both the relinquished property you sell and the replacement property you buy must meet certain requirements.
Both properties must be held for use in a trade or business or for investment. Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment.
Both properties must be similar enough to qualify as "like-kind." Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States. Also, improvements that are conveyed without land are not of like kind to land.
Real property and personal property can both qualify as exchange properties under Section 1031; but real property can never be like-kind to personal property. In personal property exchanges, the rules pertaining to what qualifies as like-kind are more restrictive than the rules pertaining to real property. As an example, cars are not like-kind to trucks.
Finally, certain types of property are specifically excluded from Section 1031 treatment. Section 1031 does not apply to exchanges of:
Inventory or stock in trade
Stocks, bonds, or notes
Other securities or debt
Partnership interests
Certificates of trust
What are the time limits to complete a Section 1031 Deferred Like-Kind Exchange?
While a like-kind exchange does not have to be a simultaneous swap of properties, you must meet two time limits or the entire gain will be taxable. These limits cannot be extended for any circumstance or hardship except in the case of presidentially declared disasters.
The first limit is that you have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary. However, notice to your attorney, real estate agent, accountant or similar persons acting as your agent is not sufficient.
Replacement properties must be clearly described in the written identification. In the case of real estate, this means a legal description, street address or distinguishable name. Follow the IRS guidelines for the maximum number and value of properties that can be identified.
The second limit is that the replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier. The replacement property received must be substantially the same as property identified within the 45-day limit described above.
Are there restrictions for deferred and reverse exchanges?
It is important to know that taking control of cash or other proceeds before the exchange is complete may disqualify the entire transaction from like-kind exchange treatment and make ALL gain immediately taxable.
If cash or other proceeds that are not like-kind property are received at the conclusion of the exchange, the transaction will still qualify as a like-kind exchange. Gain may be taxable, but only to the extent of the proceeds that are not like-kind property.
One way to avoid premature receipt of cash or other proceeds is to use a qualified intermediary or other exchange facilitator to hold those proceeds until the exchange is complete.
You can not act as your own facilitator. In addition, your agent (including your real estate agent or broker, investment banker or broker, accountant, attorney, employee or anyone who has worked for you in those capacities within the previous two years) can not act as your facilitator.
Be careful in your selection of a qualified intermediary as there have been recent incidents of intermediaries declaring bankruptcy or otherwise being unable to meet their contractual obligations to the taxpayer. These situations have resulted in taxpayers not meeting the strict timelines set for a deferred or reverse exchange, thereby disqualifying the transaction from Section 1031 deferral of gain. The gain may be taxable in the current year while any losses the taxpayer suffered would be considered under separate code sections.
How do you compute the basis in the new property?
It is critical that you and your tax representative adjust and track basis correctly to comply with Section 1031 regulations.
Gain is deferred, but not forgiven, in a like-kind exchange. You must calculate and keep track of your basis in the new property you acquired in the exchange.
The basis of property acquired in a Section 1031 exchange is the basis of the property given up with some adjustments. This transfer of basis from the relinquished to the replacement property preserves the deferred gain for later recognition. A collateral affect is that the resulting depreciable basis is generally lower than what would otherwise be available if the replacement property were acquired in a taxable transaction.
When the replacement property is ultimately sold (not as part of another exchange), the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax.
How do you report Section 1031 Like-Kind Exchanges to the IRS?
You must report an exchange to the IRS on Form 8824, Like-Kind Exchanges and file it with your tax return for the year in which the exchange occurred.
Form 8824 asks for:
Descriptions of the properties exchanged
Dates that properties were identified and transferred
Any relationship between the parties to the exchange
Value of the like-kind and other property received
Gain or loss on sale of other (non-like-kind) property given up
Cash received or paid; liabilities relieved or assumed
Adjusted basis of like-kind property given up; realized gain
If you do not specifically follow the rules for like-kind exchanges, you may be held liable for taxes, penalties, and interest on your transactions.
Beware of schemes
Taxpayers should be wary of individuals promoting improper use of like-kind exchanges. Typically they are not tax professionals. Sales pitches may encourage taxpayers to exchange non-qualifying vacation or second homes. Many promoters of like-kind exchanges refer to them as “tax-free” exchanges not “tax-deferred” exchanges. Taxpayers may also be advised to claim an exchange despite the fact that they have taken possession of cash proceeds from the sale.
Consult a tax professional or refer to IRS publications listed below for additional assistance with IRC Section 1031 Like-Kind Exchanges.
References/Related Topics
Publication 544, Sales and Other Dispositions of Assets
Form 8824, Like-Kind Exchanges (PDF)
Form 4797, Sales of Business Property
<< <i>For all the nervous Nancies that want to dot every I & cross every T (note that coin dealers can't do a like kind echange between themselves if the coins are inventory to each other): >>
Dealers can own coins for investment which is then eligible for a like-kind exchange as long as it is NOT part of their inventory. Great paperwork detail is a must. The IRS will scrutinize the transaction(s) very carefully too.
roadrunner
"Seu cabra da peste,
"Sou Mangueira......."
I swap 1-oz Platinum Proof Coin #1 (Fair Market Value $3000) in exchange for (identical except it's a different year) 1-oz Platinum Proof Coin #2 (FMV $2000) plus 0.5-oz Platinum Proof Coin #3 (FMV $1000).
On the surface, would that exchange wash...or would the "added numismatic value" of Coin #1 over Coins 2 & 3 trip things up? Or would simply trading 2 coins for 1 coin be enough to blow this entire scenario out of the water?
The determination would of course be up to the IRS and the onus would be on the dealers to proove the characterization as NON-inventory was correct.
Lots easier when NONE of the parties were dealers whose regular course of business was to buy and sell coins with the (sole/predominant) intent to make a profit.
Camelot
``https://ebay.us/m/KxolR5
``https://ebay.us/m/KxolR5
"Seu cabra da peste,
"Sou Mangueira......."