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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.

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.

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.

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.

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