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August 17, 2014 at 11:07 AM
Besides being an enjoyable and potentially profitable activity, collecting rare coins can provide investors tax benefits, according to some experts.
Armen R. Vartian, an attorney in Manhattan Beach, California, discussed the tax advantages of such collectibles recently in a specialty publication.
One advantage that has an immediate impact on coins’ cost is that purchases from local dealers can be exempt from state sales tax, he explains in “Rare Coin Wholesalers,” based in Irvine, California.
This can translate in substantial savings for residents of states with sales tax rates in the high-single digits.
The exemption has a practical value, as well, Vartian points out: Instead of buying from an out-of-state dealer to avoid local sales tax, collectors can work with dealers located in their own state.
The reason for the exemption is that rare coins are considered “monetized bullion,” Vartian says.
The exemption applies if the coins are purchased in a single invoice in amounts over $1,000 or $1,500, depending on the local tax laws.
“Rare coins in that sense differ from watches and jewelry and other things that people might want to buy that are luxury items,” he explains. “Those are taxed as consumer purchases whereas rare coins are taxed as investments and therefore no sales tax.”
Like-Kind Exchanges
Real estate investors are familiar with IRS Code Section 1031 “like-kind” exchanges that allow property owners to trade appreciated properties without triggering a tax liability.
Coin collectors also can make Section 1031 exchanges, but as with real estate, the key to tax deferral is complying with the regulations.
Investors can exchange rare coins with rare coins, and bullion coins with bullion coins, says Vartian, but they can’t mix and match on the exchange.
The rules can be tricky, he cautions: “What you have to avoid is the rare coin for bullion, and then even within the category of bullion, the IRS considers silver and gold bullion to not be ‘like.’ So you can’t exchange silver for gold because they see silver as more of an industrial metal and gold as more of an investment metal.”
Deducting Expenses
