Death, Taxes & the Baltimore Orioles

This season, Baltimore Orioles fans find themselves in an all too familiar spot–looking to the future after yet another disappointing season. After spending so many years as AL East bottom dwellers, with one of the lowest team payrolls in baseball, many Orioles fans are hoping team owner and renowned Baltimore attorney, Peter Angelos, will hang a “for sale” sign in the window at Camden Yards. 

A recent article in The Washington Post by Thomas Boswell suggests Angelos may not be so eager to sell just yet. Why? Well, taxes, of course. Angelos purchased the Orioles in 1993 for a cool $173 million. Boswell estimates the Orioles may now be worth approximately $1.4 billion. If Angelos sold the team today, he would pay capital gains taxes on that roughly $1.2 billion in appreciation since 1993. If, however, Angelos, now 91-years-old, holds the team until his death and leaves the Orioles to his heirs via his estate plan, his heirs will pay substantially less in capital gains tax because of something called a “step-up in basis.” 

Since most of us do not own a professional baseball franchise, let’s illustrate how the step-up in basis operates with a more common example. Mary is Bob’s mother. Mary leaves her entire Estate to Bob via her Last Will and Testament. The biggest asset in Mary’s Estate is her house in Rockville. Mary bought the Rockville home in 1986 for $100,000. Mary’s “cost basis” in the Rockville home is $100,000. If Mary were to sell the home for more than $100,000, she would pay capital gains taxes on the difference between her cost basis ($100,000) and the sale price.

In 2021, the year of Mary’s death, her Rockville home is appraised for $1 million by a qualified real estate appraiser. Bob, as the beneficiary of Mary’s Estate, takes a stepped-up basis in the Rockville home of $1 million–the appraised value of the home on the date of Mary’s death. If Bob sells Mary’s house for $1 million, Bob would not pay any capital gains taxes on the $900,000 of appreciation since Mary purchased the home in 1986.

Simply put, by waiting until his death to sell the Orioles, the Angelos family will save millions on capital gains taxes.  They will avoid capital gains tax on the $1.2 Billion appreciation of the team’s value since his acquisition.

Even if you do not own a professional baseball team, the attorneys at Bulman Dunie can advise you on an estate plan that suits your needs.

If you wish to consult with Jared Sands or Jeremy Rachlin about your estate planning, please contact either at (301) 656-1177, by e-mail to Jeremy at jrachlin@bulmandunie.com, or by e-mail to Jared at jsands@bulmandunie.com