Article on Art Appreciation and Taxes

K. Eli Akhavan (Attorney, New York) has recently published an article entitled, Artfully Deferring Taxes, 59 Prob. & Prop. July/August 2012. An excerpt to his article is provided below: 

Appreciating Art

Although the Great Recession has left many with depreciated assets, many investors in the art market have seen their artworks increase in value. In fact, for 2011, the Mei Moses World All Art Index (which tracks art sales across several categories) returned 10.2% while the S&P 500 Index returned 0%.

Art investors, including individuals, corporate collectors, and art funds, that own appreciated works may desire either to cash out of their investment or to replace their artworks with new ones. Applying a technique that is generally used by real estate investors, an art investor may be able to sell an artwork that investor owns, purchase another artwork, and defer the tax liability on the gain.