Art investing is big business. As this magazine has highlighted in the past, this emerging “real asset” is of increasing interest, not only to high-net-worth individuals but also to fund managers.

For decades some individual investors have traded art with a view to benefiting from delayed realization of tax gains. Prior to 2018, one little-known aspect of art investing was a tax-deferral mechanism of like-kind exchanges (LKEs). The Tax Cuts and Jobs Act of 2017 redefined like-kind exchanges and disqualified exemptions for the trading of vehicles, collectibles and, importantly, art.

LKEs enabled investors to trade one property for another property of a similar kind. In a like-kind transaction, the taxpayer sells the “relinquished” property, and the proceeds are sent to the intermediary to be held in a trust account or qualified escrow. LKE enabled art investors to maintain their initial capital investment while empowering them to both grow and diversify their po