A-Rod’s Home Run Ball Tax Implications
If you needed more proof that our tax system is far too complicated, consider the case of Alex Rodriguez' 600th home run ball.
When A-Rod hit his 600th home run yesterday, my thoughts naturally turned to balancing the spectacular athletic achievement with the knowledge that some unknown number of those homers were steroids-aided. The folks at the WSJ, though, are concerned about the tax implications.
If the ball is the property of the Yankees and they allow A-Rod to have it, this could mean an extra $100,000 of taxable compensation for the player, while the team would see a corresponding deduction. (Under settled tax law, the ball cannot qualify as a tax-free gift from the Yankees to A-Rod because he is an employee of the team.)
On the other hand, team executives could argue that the ball became A-Rod’s when he hit it, and they are simply returning his property to him. In that case, neither the player nor the Yankees would owe taxes.
But even if Rodriguez pays no tax upon receiving the ball,another serious tax question could arise if he either sells or donates it. Under one theory, the ball has increased in value due to A-Rod’s services, so a sale would simply generate ordinary income to him of almost $100,000, taxable at a top rate of 35% this year. In this case, donating the ball to a qualified charity would generate no tax deduction.
But A-Rod — or, more likely, his lawyers — might also argue that the ball is more like a $50 yard-sale painting that turns out to be a $100,000 work by Picasso (or a jumbled box of negatives that turn out to be Ansel Adams originals). Under this theory, if he sells the ball, nearly all the $100,000 would be a capital gain taxed at the 28% rate that applies to collectibles-provided he hangs onto the ball for more than a year. (The gain on collectibles held less than a year is taxed at ordinary income rates.) And if he donated it after a year — say to the not-for-profit National Baseball Hall of Fame — he might get a near-full deduction for the ball’s fair market value.
Further proof, as if it were needed, that our tax system is far too complicated.
If I had my druthers, there would be no tax implications at all to the ball. If he sells it, he’ll get money. Tax that money when he spends it. If he gives it away, well, good for him.
Hat tip: Economix