Exchanging One Classic Car for Another Isn’t as Cheap as It Was

A change that was included in last year’s tax overhaul was that of altering the 1031 like-kind exchange, which allowed deferment of any gain between the two assets. The cycle of trading up and deferring the gain could go on almost indefinitely until the day of reckoning when the collector or his estate finally cashed out, at which point the deferred taxes would be due. This is no longer the case, and car collectors are even feeling the pain.

With the change in the tax code, those who offload a collector car must pay capital gains taxes on its appreciation, regardless of whether they buy another vintage car to replace it. “Now, since you have to immediately pay taxes on the gain, about one-third of the sale proceeds of the car goes away,” Mr. John Draneas said, a lawyer out of Portland, Oregon. “Without the full proceeds to reinvest, many collectors simply can’t afford the cars that they might otherwise have wanted to trade up to.”

The percentage of $1 million-plus cars that meet their reserve at auctions in the United States has fallen about nine points since 2017, to 61%, according to Brian Rabold, vice president of valuation for the classic-car insurer Hagerty. But in the European Union, where the tax laws have not changed significantly, sell-through rates for such cars are up about 10%.

See Rob Sass, Exchanging One Classic Car for Another Isn’t as Cheap as It Was, New York Times, August 9, 2018.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.