Tax Reform’s Impact on Professional Sports

Professional sports teams often use the 1031 Exchange for Like-Kind Property to defer tax liability on any trades or sales of property outside the current reporting period. This includes the most likely property trades: player contracts. Under prior law, tax payments for the contracts could be deferred to future tax years and in theory, indefinitely. The effect of tax reform makes this deferral no longer available to sports franchises.

The new tax law alters the 1031 Exchange. It is now only applicable real estate transactions, primarily the sales of real estate held for productive use in a trade or business or for investment. This means that every trade of property that is not real estate must have its tax burden carefully calculated and reported, even if the properties traded are highly similar.

Even with the change, sports teams still have quite an arsenal for tax breaks even without the 1031 Exchange. Tax reform did not alter the benefits of using depreciation of tangible assets, amortization of intangible assets, and the Roster Depreciation Allowance (specifically for player contracts).

See Harvey Bezozi, Tax Reform’s Impact on Professonial Sports, Wealth Management.com, April 30, 2018