Your Classic Car Qualifies For A 1031 Tax Exchange
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by: MartinR.Remington
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Word Count: 356
Antique or collectible items such as classic cars can be highly lucrative investments - as a matter of fact, collectible cars have greatly increased in value in recent years, and demand is for them is currently at a high.
Now is certainly a great time to cash in on the classic car you've been holding for investment, but a look at the tax rates on the sale of collectibles might put a damper on your enthusiasm; as much as 28% of your profits could end up going to capital gains taxes.
There is a solution to this problem, and it lies in section 1031 of United States tax code. It is commonly known to real estate investors that by exchanging a piece of property under section 1031 rather than simply selling, one can defer the capital gains liability indefinitely, receiving what amounts to an interest-free loan from the government. Less publicized, however, is the fact that one can also make an exchange on certain types of personal property, including classic cars.
In this sort of situation, a 1031 exchange is a very good idea, but you must keep in mind that the requirements for like-kind exchanges on personal property are much more stringent than the like-kind requirements for real estate. This means that if you have a car, you can only exchange it for another car, not a crane or a backhoe. In addition, your car must be held for the purpose of investment or business, as must your replacement.
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.
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
U.S. investors can save their 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 similar to an interest free loan from Uncle Sam!
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