7715 / How is an individual taxed if, instead of selling the collectible, it was exchanged for other property in a “like-kind” exchange prior to 2018?

Editor’s Note: For tax years beginning after 2017, “like-kind” exchange treatment under IRC Section 1031 is only permitted with respect to exchanges of real property. The rules below outline the pre-2018 like-kind exchange rules. For tax years after 2017, such an exchange results in a taxable event under federal and state income tax law, see Q 7714 for current income tax rules applicable to such exchanges. This dramatically reduces the opportunity for nontaxable exchanges of collectible of a like-kind.

If the collectible was exchanged solely for another collectible (or collectibles) of the same nature or character, the transaction would generally receive nonrecognition treatment, subject to the rules for like-kind exchanges under IRC Section 1031. Thus, the exchange of numismatic coins for other numismatic coins or stamps for stamps would generally qualify as a like-kind exchange. For an explanation of like-kind exchanges and the effect of giving or receiving money or other property in connection with an otherwise valid like-kind exchange, see Q 710.

In the case of coins, the exchange of a “numismatic” coin for a bullion-type coin was not a like-kind exchange.¹ (See Q 7713 for more examples of like-kind exchanges under IRC Section 1031.) Surprisingly, there are no clear rulings or case authority as to whether the exchange of a numismatic coin for another numismatic coin qualified as a like-kind exchange. However, the 1991 proposed regulations would appear to support the idea of like-kind exchange treatment under the rules applicable to artwork and other collectibles.

Planning Point: Note that what is a “numismatic” coin is not entirely clear so care should be taken that both the relinquished coin and the replacement coin are both considered “numismatic” in order to be like-kind and qualify for the 1031 tax-free exchange tax treatment. This advice now only applies to exchanges that occurred pre-2018.

1.  See e.g., Rev. Rul. 79-143, 1979-1 CB 264.