It would have to be a gallery that buys and sells pieces in my view and otherwise be an active trade or business in my view. The pieces held as part of that business for long-term appreciation might benefit from the overall exit, then.
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How can art collectors benefit from Opportunity Zones?
In the past, art collectors could use the Section 1031 but after that changed, I’ve heard that OZs could offer advantages. How?
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The benefit of investing in an Opportunity Zone is that the re-investment does not need to be alike. This means art for art, real estate for real estate, etc.
For sales by non-artists, they can roll capital gain into an OZ.
You need to operate a trade or business and cannot be operating for investment purposes.
You would have to operate this as a trade or business. So unless you are brokering the art our running a museum/art gallery, I find it difficult to truly create a QOF for purely art collection.
I'm not sure, but I guess it would be the ability to roll gain from a sale of art into an OZ investment. It's the same benefit as sale of stock.
There was one article about this that was not very well-informed. The only way I can see art being part of a QOZB is if the QOZB operates an art gallery, buying and selling pieces regularly for 10 years, and then the QOF sells the art gallery. Not exactly an ideal way to approach the QOZ program.
The only benefit I see is that if you sell a work, you can roll the capital gain into an OZ and minimize taxes.
A capital gain from any source, including the sale of art held as an investment, can get that gain deferred by investing in an Opportunity Zone fund. Tax deferral opportunities are not just for real estate anymore.
Collectors who realize capital gains subject to federal income tax can benefit from the deferral, step-up and latter exclusion as any other taxpayer realizing capital gains.
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