“Tax Break Used by Investors in Flipping Art Faces Scrutiny”

NEW YORK TIMES | GRAHAM BOWLEY

Introduced in the 1920s to ease the tax burden of farmers who wanted to swap property, it soon became a tool for real estate investors flipping, say, office buildings for shopping malls.

Now, this little-known provision in the tax code, known as a like-kind exchange, has become a popular tactic for a new niche of investors: buyers of high-end art who want to put off — and sometimes completely avoid — federal taxes when upgrading their Diebenkorns for Rothkos.

“You can defer millions of dollars of taxes,” said Josh Baer, an art adviser who helps clients take advantage of the tool.

The exchanges have become prevalent enough, and the cost to the government significant enough, that the Obama administration is seeking to eliminate them, a prospect causing no shortage of alarm in sectors of the art world.

Read entire article at the New York Times.