7712 / How is an individual taxed if, instead of selling a precious metal, the individual exchanges it for other property in a transaction that does not qualify as a “like-kind” exchange?

Editor’s Note: For tax years beginning after 2017 under the 2017 tax reform legislation, “like-kind” exchange treatment under IRC Section 1031 is only permitted with respect to exchanges of real property. The rules below outline the current income tax rules in the absence of the applicability of the like-kind exchange rules. Now, such an exchange will now result in a taxable event for federal and probably state income tax purposes. See Q 7711 for like-kind income tax treatment that was available for pre-2018 tax years.

If an individual exchanges a precious metal held as an investment for another precious metal of a different kind or class, or other property that is not a precious metal, 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 adjusted tax basis in the precious metal transferred.¹ In several situations, the IRS has ruled the receipt of coins (silver) is to be treated as the receipt of real property and the coins are to be valued and reported at their fair market value and not as money for purposes of determining taxable gain or loss.² Normally, these will be capital gains and losses. See Q 698.Whether the capital gain or loss will be long-term or short-term depends on how long the metal had been owned. See Q 699. For the treatment of capital gains and losses, see Q 702. For the treatment of collectibles, including “any metal or gem,” see Q 7714.