7716 / How is an individual taxed if, instead of selling the collectible, it is exchanged for other property?
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 post-2017 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 7715 for pre-2018 income tax rules applicable to such exchanges.
If an individual exchanges a collectible held as an investment for (1) another collectible of a different kind or class, or (2) other property that is not a collectible, the individual will recognize a taxable gain (or loss) to the extent that the sum of the fair market value of the property and money (if any) received in the transaction is greater (or less) than the tax basis in the collectible transferred.1 Normally, this will be a capital gain or loss. See Q 698. A capital gain or loss will be short-term or long-term depending on how long the transferred collectible had been owned. See Q 699.
Collectibles gain (i.e., gain on the sale or exchange of a collectible that is a capital asset held for more than one year) is subject to separate treatment from other capital gains and losses, which generally results in its being subject to a capital gain tax rate that is less favorable than the generally applicable rate, but more favorable than the ordinary income tax rate.2 For the tax treatment of capital gains and losses, see Q 702.