The Tax Cuts and Jobs Act provides extensive benefits to real estate investors while the poor, down-trodden art collector has seemingly received the short end of the stick. When Congress voted to maintain 1031 exchanges for real estate investors, these individuals were allowed to continue selling property free of taxes as long as they used the proceeds to purchase more property. Prior to the change in tax law, the loophole had been open to others, including car aficionados, franchisees, and, of course, art collectors. Christopher Pegg, senior director of wealth planning for California and Nevada at Wells Fargo Private Bank, noted the potential for wealthy investors to take advantage of these exchanges until their death, where they face no capital gains tax and can receive “that big basis step-up in the sky, and the tax is entirely avoided.” Though the argument for the art community to receive similar treatment under the tax law seems to be a petulant, “that’s not fair!” there are some potential negative implications for museums and domestic collectors.
See Paul Sullivan, How the Tax Code Rewrite Favors Real Estate Over Art, The New York Times, January 12, 2018.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.
