IRC §1031 is for differing capital gain or loss for “property productively used in a trade or business or held for investment". Keep in mind; however, when an artist produces a piece, typically the “piece" is dealer property to be sold, not to be “held". Therefore, keep in mind that this is intended for collectors of art, not producers of art. 

EXAMPLE: an actual client of Exchange Authority owned part of Andy Warhol’s Self Portrait with a very low “basis". It was sold for millions and would have resulted in a significant capital gains tax for our client. However, our client did a §1031 exchange, differed hundreds of thousands of dollars worth of taxes and purchased more paintings.

Again, think of the 401K rollover into an IRA. No taxes as long as it is structured properly, handled by a qualified person, and re-invested into a like-kind investment.

You bought a painting for $10,000 and years later you are able to sell for $50,000. You have $40,000 in gain, not including depreciation (see your accountant). You will be taxed on the $40,000 at 28% Federal “Collectibles" Long Term Capital Gains Tax + whatever the State tax is. Unless you do a §1031 exchange and defer your taxes into more paintings.

LIKE-KIND: “like-kind" is stricter for artwork than it is for real estate. You are able to do paintings for paintings, sculptures for sculptures, but not Paintings for sculptures.

STRATEGY (See the “NOTE" at the bottom before considering): you or your client owns $500,000 worth of paintings that were purchased decades ago for a low price. They are now interested in selling the paintings, but are not to keen on having to pay significant taxes on the hundreds of thousands of dollars worth of gain. One of many options could be to sell the paintings, do a §1031 exchange into a single, but very popular painting, that a museum will lease out from you to hold it in their collection or for special exhibits. You now turned your $500,000 “dust collectors� in your home into a cash-flowing* asset. Granted, you will have to pay taxes on the income, but at least you are potentially netting a significant positive compared to netting ZERO while the paintings hang in your house.