Classic cars have appreciated tremendously in value in recent days, and they are in high demand. Your first inclination may be to sell your car outright and cash in on your investment, but a look at the capital gains tax rates might change your mind.
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.
In light of the enormous capital gains tax hit that accompanies the sale of classic cars and other such collectibles, those who have put money in these kinds of investments have a unique opportunity to profit from making an exchange instead of selling up front, and will benefit even more from the tax deferral than those with real estate investments.
1031 exchanges on personal property are conducted in much the same manner as real estate exchanges, but one important difference is that the like-kind requirements that must be met for the exchange to be valid are quite a bit more stringent. While a real estate investor can, for example, exchange an apartment building for farmland of equal or greater value, an investor dealing with personal property can only exchange a car for a car, a plane for a plane, and so on.
So why take the 28% hit from capital gains taxes when you can defer those taxes and put the money you save towards a new investment? 1031 exchanges aren't just good for real estate investments; they can save you a bundle in taxes when you are seeking to sell personal property as well.
About the Author:
United States property investors can save a lot of money by utilizing a 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is almost like getting an interest free loan from Uncle Sam!
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