| Strawberry was forced to give a portion of the deferred money from the contract to his ex-wife, Charisse, as part of their divorce settlement in 2006, but the payments were never made. In 2010, Charisse filed for Chapter 7 bankruptcy protection and, as part of the proceedings, asked for what was owed. But in September, a judge in the Northern District of Florida ruled that the annuity was the property of the IRS, not Charisse, because Darryl still had not settled his tax debt owed for 1989, 1990, 2003 and 2004. |
Huh?
Doesn't he also owe taxes on the $1.9M he receives?
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18 1/2 years, he will have received $1,973,984.04, or about $675,000 more than the original investment. The problem though is that he's lost the ability to invest the $1.3M in the interim. Will the amount of after tax earnings on that $1.3M during the next 18 1/2 years exceed $675,000?
Doesn't he also owe taxes on the $1.9M he receives?
Good question. I don't know. But he presumably has already paid taxes on the $1.3M. So maybe he just owes taxes on any amount he receives from the Mets over that amount, up to the $1,973,984.04.
Only on what he receives above the principal of $1.3MM. The return of his investment will (probably) be counted ratably over the life of the payments, so for each payment of $8,892, he'd have about $3,039 of taxable interest, and $5,856 of non-taxable return of investment.
giants#1: The investor will have to pay taxes on the interest income (~$600k), not the full $1.9 million. Unless the investor is not subject to taxes. Maybe the buyer is a charity, or was able to buy via a no-tax vehicle (IRA etc.) Of course it is entirely possible that the buyer is a middleman for the Mets. To the extent the Mets can now borrow at <4.89%, it would be smart of them to repurchase this debt with new borrowed funds.
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Doesn't he also owe taxes on the $1.9M he receives?
Only on what he receives above the principal of $1.3MM. The return of his investment will (probably) be counted ratably over the life of the payments, so for each payment of $8,892, he'd have about $3,039 of taxable interest, and $5,856 of non-taxable return of investment.
Ok, so if my math is right, at the current 15% capital gains tax, he'd owe ~$100k in taxes, further cutting into his ~5% ROI. Seems like a poor deal on his part unless he thinks the current global economic mess is going to persist for a while.
giants#1: The investor will have to pay taxes on the interest income (~$600k), not the full $1.9 million. Unless the investor is not subject to taxes. Maybe the buyer is a charity, or was able to buy via a no-tax vehicle (IRA etc.) Of course it is entirely possible that the buyer is a middleman for the Mets. To the extent the Mets can now borrow at <4.89%, it would be smart of them to repurchase this debt with new borrowed funds.
Yes, but he's still lost the immediate use of the $1.3M even with the monthly payments, which somebody said would be about $5,900 a month after taxes. What if he wants to invest $250K a year from now? He can invest the monthly payments, but will miss out on more costly investments.
You could say that about any investment. If you stick it in a mattress you always have immediate use, but it's not earning anything either.
Bottom line: his rate of return is well above that of other available fixed income investments of similar duration.
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Yes, but he's still lost the immediate use of the $1.3M even with the monthly payments, which somebody said would be about $5,900 a month after taxes. What if he wants to invest $250K a year from now? He can invest the monthly payments, but will miss out on more costly investments.
You could say that about any investment. If you stick it in a mattress you always have immediate use, but it's not earning anything either.
Bottom line: his rate of return is well above that of other available fixed income investments of similar duration.
His rate of return is greater with the investment than a CD, assuming the 4.89% somebody quoted is accurate. But I wonder if a good financial advisor couldn't do better than 4.89% if that money was invested in the stock market. And he has lost the ability to use the money. I guess the answer is that he's already concluded he won't need to use the money, probably because anybody who could do this almost certainly has a lot of other money available to spend.
It isn't always about maximizing returns (or shouldn't be) - risk is the other side of the return coin.
The only reason I can think of why they don't is they would lose the taxable portion of the gain.