02 November 2017

Effect of proposed US tax bill on the art market

The US House of Representatives this morning released its proposed bill for the “Tax Cuts and Jobs Act.” As of now, the proposed effective date is January 1, 2018 and the proposed bill will affect works of art as follows:

  • Works of art will no longer qualify for 1031 like-kind exchanges. The definition of “property” for like-kind exchanges will be narrowed to “real property.” This amendment generally would apply to exchanges completed after December 31, 2017. However, the current version of the proposed bill has a transition provision which states that the amendment shall not apply to any exchange if the relinquished property is disposed of on or before December 31, 2017 or the replacement property is received on or before December 31, 2017.
    • This affects investors who typically take advantage of 1031 like-kind exchanges for art. Investors may want to consider accelerating any foreseeable 1031 like-kind exchanges to occur in 2017.
    • If you already have 1031 like-kind exchanges in place for the upcoming November auction sales, the timing of payment for those sales and the timing of the acquisition of replacement property needs to be closely addressed.
  • Operating foundations that operate as art museums must be open during normal business hours to the public for at least 1,000 hours during the taxable year.
    • This affects those operating foundations who list art museum as a substantial activity. Operating foundations should review their admission hours to ensure that they comply with the 1,000 hour requirement.
  • No change to the 28% capital gains rate for works of art and collectibles.
  • No change to charitable contributions of works of art.

We have extensive experience working with clients in this area and welcome your questions. We will continue to update our analysis of the bill. Please check our Insights Page to review any new developments.


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