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Classic Car Investors Can Use A 1031 Exchange Too

Sep 7, 2008
If you invested in a classic car several years ago, you're probably patting yourself on the back right now. Collectible car investments have appreciated considerably in recent years, and they are in high demand. But if you decide to sell, don't be surprised when you find yourself looking at a 28% capital gains rate.

The rates for the sale of collectible property are much higher than those on the sale of real estate. So, is there any way to avoid paying inflated capital gains rates on the sale of your collector car? The answer is to make a 1031 exchange. This is a tactic that is often used by real estate investors, but that can be particularly helpful in the sale of collectible property.

By making a 1031 exchange instead of selling outright, you can defer your capital gains taxes indefinitely, allowing that 28% to be reinvested and continue working for you. This is useful for real estate investors, but even more so for those holding personal property for investment. Here are a few things that you should keep in mind when making 1031 exchanges on personal property, such as a classic car or other collectibles or antiques.

First of all, you need to be aware that like-kind requirements on personal property are far stricter than those on real estate. When making a 1031 exchange on real estate, you can, for example, exchange an apartment building for a farm. When making an exchange on a collector car, you can only exchange it for another car, not for a crane or a piece of aircraft equipment. Also keep in mind that it is best to exchange for property of equal or greater value. If you downsize, you will not receive the greatest possible tax deferment.

If you identify your replacement properties within the 45-day deadline, you can even put your proceeds towards the purchase of more than one replacement property. In addition, keep in mind that both the car that you are exchanging and the replacement must be held for business or investment purposes.

Now is the time to reap the benefits of your collectible car investment, but why sell outright and watch 28% of your profits go down the drain? A 1031 exchange gives you the opportunity to put the money that would have been lost to capital gains taxes towards a new investment, keeping your money working for you.
About the Author
United States investors can save big money by using a 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is similar to an interest free loan from Uncle Sam!
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