Well, it’s that time again. Pro sports franchises are trading players left and right. In Miami, our NFL pro football team is in search of a quarterback. You do realize that the Miami Dolphins should be doing a Section 1031 exchange don’t you?? Ah, you don’t understand what I mean? If you have been reading my blog, then you are aware that under I.R.C. Section 1031, a taxpayer can exchange (sell) an investment property or property used in a trade or business, for another “like kind” investment property or property used in a trade or business, and defer paying any tax on the profit. Of course they should use an independent Qualified Intermediary to handle the paperwork and monies being transferred, as the taxpayer and its agents should not hold the money.
So what does that have to do with the Miami Dolphins or any other sports franchise? Most 1031 exchanges involve real estate exchanges. Personal property exchanges are also allowed, but the standard of what is “like kind” is narrower on personal property exchanges. Yes, you can exchange an automobile for an automobile. Likewise, you can also exchange (trade) a major league sports contract for another major league sports contract. Hmm–I certainly hope these sports franchises are aware of this wonderful tax deferral technique.