Did A-Rod's 600th Home Run Cost Him $35,000 in Taxes?

By Derek Thompson

Nothing seems to come easy for Alex Rodriguez these days. Not the road fans, not the home runs, and not the tax penalties. The steroids-tainted slugger who just smacked home run number 600 might have to pay taxes on his own achievement. I don't imagine that Boston fans will mind:

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.

Read the full story at WSJ.

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http://www.theatlantic.com/business/archive/2010/08/did-a-rods-600th-home-run-cost-him-35-000-in-taxes/61004/