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Like-Kind Trades/1031 Exchanges post-2017 Tax Overhaul - What do people do now?
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31 posts in this topic

If you bought a piece for, say, $100 ten years ago, and it’s current fair market value is now, say $5000 - yes you get taxed if you make an in-kind trade for a piece of art worth $5000. You realized a capital gain. 

That said, the small time collectors are not going to be on the IRS’s radar. But the big fish might be, at some point. 

Also, too, if you keep your art until death, your family will get a very nice reward. They can sell off your collection and get the stepped up basis of it’s value when you die. So they don’t get taxed on it.

 

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Edited by PhilipB2k17
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2 hours ago, PhilipB2k17 said:

If you bought a piece for, say, $100 ten years ago, and it’s current fair market value is now, say $5000 - yes you get taxed if you make an in-kind trade for a piece of art worth $5000. You realized a capital gain. 

 

If your piece is worth $5000 today and you wanted to trade it for my piece worth $5000....why can’t we agree :gossip: on exchange value of say $100 or $1000?  Who ultimately decides value in a cashless trade? 

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24 minutes ago, GreatEscape said:

If your piece is worth $5000 today and you wanted to trade it for my piece worth $5000....why can’t we agree :gossip: on exchange value of say $100 or $1000?  Who ultimately decides value in a cashless trade? 

The IRS does. They go by FMV, or get an art appraisal. If you just make it up to deflate the asset value, that’s tax fraud. 

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13 hours ago, gumbydarnit said:

With this new tax greatly impacting the way people upgrade through trades... would fewer trades mean that there will be more competition for straight cash sells, driving up prices OR will it take the wind out of collectors sails, and the loss of the trading aspect of hobby slow down enthusiasm and drive prices down OR are the future prices unaffected by the trading tax all together?

I suspect the changes will mostly affect auctions and cause people to be a little more thoughtful on pulling the trigger on any high-end pieces where they'd need to sell art to finance it. It'll have to be must-own stuff, as opposed to nice-to-haves.

On the flip side, trading I'd expect to increase, especially three-party trades where someone wins an auctions only for the purpose of trading it to someone else in a prearranged deal.

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I think the tax code should exempt the first, say, $5K to $10K from the capital gains tax on the sale of collectibles. Or at least tax it at a much lower level, so you’re not taking the fun out of collecting things for small time regular folks. 

 

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14 hours ago, GreatEscape said:

If your piece is worth $5000 today and you wanted to trade it for my piece worth $5000....why can’t we agree :gossip: on exchange value of say $100 or $1000?  Who ultimately decides value in a cashless trade? 

 

13 hours ago, PhilipB2k17 said:

The IRS does. They go by FMV, or get an art appraisal. If you just make it up to deflate the asset value, that’s tax fraud. 

There are a lot of people out there who are not serious hobbyists; how can they be expected to know what "FMV" is at any given time?  People are probably unwittingly committing "tax evasion" all the time trading things around with no cash exchanging hands.  The whole thing is just preposterous, and is inconsistent with other tax rules. If people want to trade a page for a page with another collector, how on earth is that a taxable event?  There is no cash being exchanged, FMV is often quite ambiguous and it stifles commerce.  Plus, it is unenforceable.  This is a bad rule on every front.  

Now, if you sell to buy something else, I get it.  You have received cash and that is a taxable event - totally consistent with tax theory and tax law (outside of the 1031 exemption which no longer applies). But, swapping baseball cards or comic books?  Give me a break.  As in my example earlier, trading a Miller DD page for a Byrne XM page generates $30K in combined capital gains just for swapping places in two collectors' Itoyas?  I don't care how bleeding heart anyone is, that is just preposterous and outrageous.   

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5 hours ago, delekkerste said:

 

There are a lot of people out there who are not serious hobbyists; how can they be expected to know what "FMV" is at any given time?  People are probably unwittingly committing "tax evasion" all the time trading things around with no cash exchanging hands.  The whole thing is just preposterous, and is inconsistent with other tax rules. If people want to trade a page for a page with another collector, how on earth is that a taxable event?  There is no cash being exchanged, FMV is often quite ambiguous and it stifles commerce.  Plus, it is unenforceable.  This is a bad rule on every front.  

Now, if you sell to buy something else, I get it.  You have received cash and that is a taxable event - totally consistent with tax theory and tax law (outside of the 1031 exemption which no longer applies). But, swapping baseball cards or comic books?  Give me a break.  As in my example earlier, trading a Miller DD page for a Byrne XM page generates $30K in combined capital gains just for swapping places in two collectors' Itoyas?  I don't care how bleeding heart anyone is, that is just preposterous and outrageous.   

I don’t think the IRS is going to go after small time hobbyists on this. Also, Idont know what your basis is in the Miller or Byrne X-Men pages. If they are worth less then what you paid for them, there’s no capital gain. 

My example was where one of the pages appreciated quite a bit in value before the exchange. 

Edited by PhilipB2k17
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On ‎3‎/‎3‎/‎2019 at 10:43 PM, RabidFerret said:

 

I'm sorry if I bummed anyone out by starting this thread:( I certainly wasn't trying to...

I was simply hoping to understand the changes to the tax law and make sure I don't shoot myself in the foot.

Upgrading and trading are how I built my collection over the last 20 years and the last thing I want to do is accidentally stick myself with a costly tax bill because I swapped one piece for another without realizing the repercussions:(

 

Here's what the IRS said about like-kind exchanges after the new tax law went into effect. Nutshell: OA collectors are SOL.

https://www.irs.gov/newsroom/like-kind-exchanges-now-limited-to-real-property

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21 hours ago, GreatEscape said:

If your piece is worth $5000 today and you wanted to trade it for my piece worth $5000....why can’t we agree :gossip: on exchange value of say $100 or $1000?  Who ultimately decides value in a cashless trade? 

That is already done quite frequently with everything from real estate to automobiles. 

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