1031 Artwork and Collectible Best Practices
Posted by Andy Gustafson on Thu, Jul 01, 2010
How does a private or corporate investor support a 1031 exchange intent to hold their artwork and or collectible for investment rather than for personal use or enjoyment?
Artwork and collectibles are eligible for 1031 treatment only if they are held for investment and not personal use. Clearly, aesthetic enjoyment is one of the many pleasures derived from owning fine pieces of art and collectibles. So how can these tangible personal properties be held to qualify for 1031 consideration?
Best 1031 Exchange Practices
In a 1031 exchange, the intent to hold for investment is supported by facts. Hold time is one fact of many. Though there is no hold time stated in the 1031 code, it is suggested that one year and a day is a conservative hold time. In addition, facts supporting an investment intent include:
• Maintain a ledger of the purchase price and date of purchase;
• Become associated with known art and collectible experts;
• Become known as an expert in your chosen artwork or collectible field as an outcome of your research and study;
• Make frequent trips to inspect, research and acquire the artwork or collectible;
• Create a catalog of your works, assigning an inventory number, invoices, dates of purchases and sales, expenses per item including regular appraisals and insurance coverage.
By maintaining accurate records, developing expertise and operating the ownership of artwork and collectible as a business, the enjoyment received from the fine art can qualify for a 1031 exchange.
Replacement property must be of like-kind or same nature rather than grade or quality to the old or relinquished property.
Are you considering selling a collectible? Call us to discuss whether a 1031 exchange makes sense. Selling or buying at an auction?
