Within the new Trump Adminstration's tax overhaul, a slight change could potentially provide a major impact to wealthy art collectors' mindsets. While the new tax cuts fees for both corporations and wealthy individuals, providing more money to spend at art auctions, a recent removal of art as a benefit asset from the 1031 Exchange suggests that these transactions may become less frequent. Normally used by wealthy investors as a tool, the 1031 Exchange allows deferment of capital gains tax that then rolls over the profit of a sale in order to purchase more art. In juxtaposition to this financial shift, international art auctions, fairs, and biennials have only grown in popularity; numerous new showcases popping up in cities throughout the world. While the opportunities for sales has risen, these new tax laws call into question the future of art as an investment tool.
Because art investment is such a niche market, the largest percentage of collectors residing in the United States and predominantly older generations, many suggest that these taxes will hinder sales by these investors, who will instead pass them down to future generations. Museums also offer an avenue through borrowing; namely investors receiving benefits by lending to art institutions. This however, affects only a certain percentage of investors and leaves room to ask what about the new generations of collectors? As the young and wealthy head to fairs and auction houses for investment opportunities, will these taxes deter purchases, and push them to explore other markets of investment.
This type of purchase proves to be even more dangerous for the investment market than previously seen. Media around these purchases make the market seem hot, paired with the frequency of opportunity for art purchases worldwide, which makes the market seem tangible for many young investors. However, because these sales are almost pre-planned and done so with only the wealthiest of interested collectors, they actually make the market more volatile. Without external bidding, with actual results, auction houses are able to increase growth and inflation without validation of a real price. This reveals to be challenging territory for young art-buying enthusiasts, but as Doug Woodham, of Art Fiduciary Advisors has stated, "Collectors are smart, tax-aware people".