Collection of 38,000 coins will be auctioned by Sotheby's New York

On December 15, Sotheby's New York announced that it will auction a rare collection of practically 38,000 coins.

The New York Times reports that the collection will be offered as one item in a sealed bid that will end in March 2012, and is expected to generate proceeds between $25 million and $35 million. According to The Associated Press, the auction house has announced that it is selling the rare coins on behalf of Hispanic Society of America, which is based in New York.

The funds raised by the auction will provide the Hispanic Society with revenue, which will come in handy as the organization has faced challenges in attracting funds through donations and visitors, The New York Times reports.

Mitchell A. Codding, the executive director of the organization, told the media outlet via a phone interview that the Hispanic Society has not had a fund for purchasing collections, and that the proceeds could give the institution substantial resources for this purpose.

He added that "we still hope it can go to an institution, a public institution, like a museum. We’d like the collection to remain intact and we’d like the scholarly community to have access to the coins."

The collection is diverse, containing pieces dating from the Roman Empire as well as coins from before that period, according to the media outlet. A total of 50 large gold coins referred to as "excelentes" which were minted under the regime of Ferdinand and Isabella, are also part of the lot.

The endowment and trust assets held by the Hispanic Society have declined to $46 million at the time of report from $65 million in 2007, the media outlet reports. The organization largely depends on income generated from its investments for its $4 million operating budget.

According to The Associated Press, the founder of the institution amassed the collection more than 100 years ago. When the Hispanic Society recalled the coins from the American Numismatic Society in 2008, speculation was triggered among market participants that the lot would be sold, The New York Times.

Individuals that wish to buy and sell gold coins can realize tax benefits by setting up a 1031 exchange with a qualified intermediary such as Strategic Property Exchanges, LLC. The major benefit that an investor can realize by engaging in one of these exchanges is deferring taxation on the items sold and therefore retaining all the equity they originally had.

Keeping all the equity held in the investment would reduce the debt required for purchasing the replacement coins. This decrease in leverage would decrease debt payments and also interest costs. Since debt payments are made out of operating income, which can be taxed at rates as high as 40 percent, lowering debt means reducing taxes.

To provide an example, let's say that an investor owned a rare collectible gold coin worth $1 million and wanted to sell it. The investor finds replacement gold coins that will qualify as part of a like-kind exchange. He finds a buyer for his $1 million coin, and then works with a qualified intermediary to set up a 1031 exchange on the sale. He avoids paying income taxes on the coin sold, and retains all equity in the original item.

One final benefit of using 1031 exchanges is that there is no limit on the number of times they can be used. An individual who owns coins such as these can utilize these exchanges whenever suitable investment opportunities present themselves.