The new tax law has had a lot of implications on 1031 exchanges. In this article, we are going to discuss 1031 exchanges of sports team player contracts and the implications of the new tax law.
When a sports team trades a player, they are essentially selling the player’s contract, which is viewed as a business asset. In the past, many teams have sold these contracts under section 1031 of the Internal Revenue Code, which allowed them to defer capital gains taxes on such a sale so long as they reinvested any proceeds into like-kind property (i.e. another player’s contract). But the new tax law changes that.
New Tax Law
The new tax law that went into effect January, 2018 limits 1031 exchanges to real estate. Items of personal property, which historically had been allowed under section 1031, are now excluded from 1031 treatment. That means team player contracts would no longer be eligible for 1031 exchange, and any teams would have to recognize capital gains when trading players (and thus selling their contracts). The big question is whether this will discourage teams for trading as many players moving forward.
Qualified Intermediaries for 1031 Exchanges
If you are considering a 1031 exchange tax deferral, it’s in your best interest to speak with a qualified intermediary before beginning the exchange process. Qualified intermediaries are trained 1031 professionals who understand the inner workings of like-kind exchanges. They can help advise you throughout your exchange and prepare your required documents for closing. At Commercial Partners Exchange Company, we have been helping taxpayers with their 1031 exchanges for over two decades. Contact us today at our downtown Minneapolis office to set up a time to chat with our intermediaries.
- 1031 Hotline: If you have questions about 1031 exchanges of sports team player contracts, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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