Tax and Consequences

Sheryl Ring looks at how the new tax law might impact trades and free agency. This was the most fascinating bit:

It used to be that trading players was considered a “like kind exchange.” That’s a technical way of describing a swap for items of the same kind — as opposed to one party using money to acquire an item from another party. You can find like-kind exchanges in Section 1031 of the Internal Revenue Code — or, you could find them there until tax reform made like-kind exchanges of non-real property assets taxable. In other words, teams now have to pay taxes on trades they make, depending on whether or not they realized a “taxable gain” from the trade. And if you’re talking about deals for stars on big contracts, that matters, but potentially not in the way you think.

According to the tax law firm of Seward and Kissell,

[t]he value of a player rests in his or her future performance, which is difficult to predict. Teams may have to adopt or develop a method of valuing player contracts for tax purposes, such as actuarial values based on player age and the average length of a professional sports career. Teams trading players would then recognize gain or loss on a contract when a player is traded equal to the difference between the contract’s actuarial (or other) value and the team’s basis in the contract.

That’s right: the contract value isn’t the thing. The asset value is.

The article is interesting throughout, as both players and owners will need to adjust to the new tax law in myriad ways.

from baseballmusings.com http://ift.tt/2FGi7Vz