Imagine heading to the ballpark to see a game this baseball season — and you’re lucky enough to catch a historic, record-breaking home run ball.
Do you celebrate? Do you keep it? What if the player wants it back?
One Maryland tax expert says there may be a lot of unforeseen consequences of that historic baseball falling into your lap.
”If you catch a ball that’s worth hundreds of thousands of dollars, that potentially is income, because you’re getting wealthier from catching the ball,” David De Jong, a CPA and tax attorney with Stein Sperling in Rockville, Maryland, said.
“The big controversy that’s occurred over the years is — do you pick up income when you catch that home run ball, or do you only pick up income when you dispose of the ball?” he mused.
The IRS says it’s when you catch it.
But according to Major League Baseball: “It’s worth $25 arguably unless it’s authenticated,” De Jong said.
That authentication is usually done by the team. When there’s a game where a record could be broken, teams do something special.
“They put a watermark or some other indication on the ball that you cannot see,” De Jong explained.
If you do hold onto a ball with the intention of selling it later, De Jong said to wait at least a year and a day to do so. This is because you’ll get a more favorable tax rate for capital gains; after a year the ball is considered a collectible, which gets a lower percentage tax than it would’ve before.
But there’s also a situation where the team, player, or both, might want that ball back.
“If you don’t want to be concerned with taxes, you can do a disclaimer,” De Jong explained. “The easiest way to do a disclaimer is to throw the ball back on the field.“
But, he warns, as one LA Dodgers fan who caught start player Shohei Ohtani’s first Dodger home run ball found out — that path could lead to little or no reward.
“None of these questions have really been answered by the IRS over the years, but it sure is fun to think about the hypothetical — or the very real — especially during baseball season, as a tax professional,” De Jong laughed.
Possible record breakers this year:
- LA Angels Mike Trout nearing his 400th home run: currently has 368 (needs 32 to hit 400).
- NY Yankees slugger Aaron Judge has 257 home runs: needs 43 to reach 300 (hit 62 in 2022).
- LA Dodger Shortstop Mookie Betts has 252 home runs: needs 48 to reach 300 (most hit in a season was 39 last year).
- Evan Longoria: 2,000th career hit (has 1930 hits).
Tax implications of catching a historic baseball
There are four options for fans who catch a significant baseball, according to De Jong:
Option 1: Immediately return the ball to the field
- By promptly returning the ball to the field, fans can avoid any tax liability.
- This action essentially disclaims the property, preventing it from being included in the fan’s income under Section 61(a).
- However, fans should be cautious as simply handing the ball to someone else, including the player who hit it, could incur a gift tax.
Option 2: Keep the ball
- Keeping the ball presents a more complex situation for fans.
- They must decide whether to recognize income associated with the ball immediately or defer it until they decide to sell the ball.
- The IRS considers a caught baseball as “treasure trove” income, necessitating recognition of income for the ball’s fair market value upon possession.
- However, without an appraisal, determining the ball’s value can be challenging.
- Deferring recognition until the sale date avoids immediate tax payment but may lead to valuation issues.
Option 3: Sell the ball before year’s end
- Selling the ball before year’s end in an arm’s length transaction provides a clear fair market value, determined by the sale price.
- This option resolves recognition and valuation concerns, with the sale proceeds covering the increased tax liability.
Option 4: Give the ball away
- Giving away the ball could still result in tax consequences.
- The remaining value of the gift beyond the exclusion limit reduces the unified credit against a death tax.
- Donating the ball to charity makes the taxpayer eligible for a charitable deduction, the only option providing a tax benefit.
- However, determining the fair market value may require an appraisal, and the deduction is limited to 30% of adjusted gross income.
- Can a player swap with someone who catches a milestone ball?
It’s important to note that players can no longer offer an individual gifts to get back a milestone ball.
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