The US House of Representatives unveiled an ambitious tax plan yesterday that many experts say would largely benefit corporations and the wealthy. But a few of art collectors’ favorite loopholes have been tightened in the process. Although lawmakers emphasize that the bill is a long way away from final, the proposal has set off alarm bells in certain corners of the art world.

The plan could be bad news for two kinds of elite collectors: those who are constantly buying and selling art and those who have set up private museums to house their holdings.

Republicans’ proposal seeks to tighten an obscure and complex provision in the tax code that allows investors to immediately avoid capital-gains tax by using the proceeds from the sale of a piece of property to purchase another, similar piece of property within a short period of time.

Although the rule is most commonly used in pricey real estate transactions, it became wildly popular among art collectors during the recent market boom, not only because the value of art skyrocketed to unprecedented levels, but also because art remains one of the few assets that incurs the highest capital gains rate (28 percent).

The Republicans’ new proposal limits the use of these “swaps”—called “1031” or “like-kind” exchanges—to real estate. That means that collectors who once relied on the tool will be out of luck.

The plan also targets private museums by specifying that these increasingly popular institutions must meet a certain standard in order to qualify for the full tax benefits they are used to enjoying. The plan states that museums must remain open during normal business hours for at least 1,000 hours each year to qualify as tax-exempt foundations.

If both rules make it into the final tax plan, they would go into effect after December 31. Read more