Like-Kind Exchange of Fine Art

Richard Wolloch and Jeffrey Love recently concluded a $10,200,00 reverse like-kind exchange of fine art. A major work of art was purchased by one of the firm’s high net worth clients and he then sold a number of smaller artworks to finance the earlier purchase. Like-kind exchanges of art pose many challenges that are not present in real property exchanges. Not all types of art are considered “like-kind.” Similarly, the number of pieces of art involved in trading-up to a major piece of fine art may involve a couple of dozen paintings, as was the case in this transaction. The result of this transaction was that the client was able to buy a very expensive piece of art using a short-term loan and then sell other artworks to repay the loan and, in the course of this transaction, the client was able to defer $2,856,000 in capital gains taxes, which would otherwise have been due on the sale of the relinquished artworks. (Artwork is subject to a capital gains tax rate of 28%).