Why Pro Athletes Invest in Real Estate as Passive Investors

Why do pro athletes invest in real estate as passive investors? Because a playing career pays a great deal of money across a small number of years, taxes it at the highest marginal rates in the code and in a dozen states at once, and then ends. Real estate investing for athletes, done passively, is an attempt to convert a short income spike into income that keeps arriving after the last game, without adding a second job during the season. What it does not do is remove risk or create liquidity.

This guide covers the shape problem that makes a playing career different from a high-paying profession, the tax stack on a player's paycheck, why direct ownership fails a travel schedule, the rule that decides whether a depreciation deduction is usable while a player is still under contract, and what changes the year the career ends. The mechanics of the position itself are described in the guide to passive commercial real estate investing.

Key Takeaways

• Researchers studying NFL players described them as earning several million dollars during an income spike that lasts a few years, then living decades on the other side of it.
• That same study found total career earnings and career length had surprisingly little effect on bankruptcy risk, which points at the shape of the income rather than its size.
• For 2026 the IRS set the top federal rate of 37% at income above $640,600 for single filers and $768,700 for married couples filing jointly.
• Most states with an income tax allocate a nonresident athlete's pay by duty days, so one season can produce filing obligations in many states at once.
• IRS Publication 925 treats rental activity as passive even where the taxpayer materially participated, unless that participation was as a real estate professional.
• The real estate professional test requires more than half of all personal services in real property trades or businesses, which a player under contract does not satisfy.

Playing incomeHousehold spending, held flat

A hypothetical playing career against a lifetime of spending

	Playing income	Household spending, held flat
Age 23-27	$900K	$300K
Age 28-32	$400K	$300K
Age 33-37	$0	$300K
Age 38-42	$0	$300K
Age 43-47	$0	$300K
Age 48-52	$0	$300K

Illustrative arithmetic to show the mechanism, not market data.

Why a Playing Career Is an Income Spike, Not an Income Stream

A high-paying profession produces income for thirty or forty years. A playing career produces it for a few, and the money has to cover the decades that follow. That difference in shape, rather than any difference in amount, is what makes the financial problem specific to athletes rather than a version of what every high earner faces.

The research describes it plainly. In a study of bankruptcy among NFL players, Carlson, Kim, Lusardi, and Camerer characterized their subjects as players who typically earn several million dollars during an income spike that lasts a few years, and reported that players in their sample began filing for bankruptcy soon after they stopped playing and continued filing at a high rate through at least the first twelve years of retirement.

The finding worth sitting with is the next one. The authors reported that players' total earnings and career lengths had surprisingly little effect on the risk of bankruptcy. Earning more did not solve it. Playing longer did not solve it. That is an unusual result, and it argues against the reflex explanation that athletes simply need bigger contracts or better luck with injuries.

Contract structure sharpens the point rather than softening it. A large headline number is not the same as money received. NFL contracts are substantially not guaranteed, so the years at the back of a deal are a plan rather than a payment. Major League Baseball deals frequently defer compensation for years or decades. The NHL withholds a portion of every paycheck in escrow to balance the revenue split under the collective bargaining agreement. In each case the gap between the announced figure and the deposited figure is real, and the announced figure is the one everybody around the player has heard.

The practical consequence is that a career has to fund a period several times its own length, out of money that arrives early, is taxed heavily on arrival, and stops without notice. Every other decision follows from that.

The Tax Stack on a Player's Paycheck

A player's compensation is wage income taxed at the top marginal rates, and unlike most high earners, it is taxed by several states for the same season. The federal bracket is the visible part. The multi-state allocation underneath it is the part that turns one job into a stack of filings.

For tax year 2026 the IRS inflation adjustments set the top federal rate of 37% at income above $640,600 for single filers and $768,700 for married couples filing jointly, with 35% beginning at $256,225 and $512,450 and 32% at $201,775 and $403,550. A veteran on a second contract is usually earning at the top of that stack rather than working up through it.

Two surcharges sit above the bracket. The 0.9% Additional Medicare Tax applies to wages above $200,000 for single filers and $250,000 for joint filers, and those thresholds are fixed by statute rather than indexed, so they are crossed by more earners every year. State income tax comes after that.

The state layer is where an athlete's situation departs from every other profession. Most states with an income tax allocate a nonresident athlete's compensation using a duty-day formula, dividing the days worked in that state by total duty days for the season and applying the fraction to total pay. Duty days are broader than game days, generally covering practices, meetings, and required travel from the start of official preseason through the last game. The result is a set of nonresident returns filed across the road schedule, with the resident state generally allowing a credit for tax paid elsewhere, and with the arithmetic depending on the specific states involved.

Agent commissions, union dues, and training costs come out of the same gross figure, and whether any of them is deductible depends on current law and on how the athlete is paid. None of this is an argument against earning the money. It is an observation that the marginal dollar of playing income is the most heavily taxed dollar an athlete will ever receive, which is what makes a dollar arriving through a different mechanism worth examining on its own terms.

Why Buying Rental Property Fails a Season Schedule

Direct ownership is a job, and it is a job whose hours land exactly where a player's do not. Lenders, brokers, contractors, appraisers, and county tax offices operate on weekday business hours in one city. A player spends a large share of the season in a different city every few days, and the remaining hours belong to practice, film, treatment, and travel.

Geography is the constraint that makes this worse for athletes than for other busy professionals. A physician buys near where they will live for twenty years. A player buys near where they were drafted, and a trade, a waiver claim, or a two-way assignment can move them across the country before the first lease renews. Owning a building in a market you no longer live in is the version of real estate that consumes the most attention and returns the least.

Hiring a property manager removes the phone calls without removing the decisions. The owner still signs the loan, approves the lease, funds the roof, and carries the vacancy alone when a tenant leaves. That is delegated management rather than a passive position. The genuinely passive version is one where economic exposure continues while the decision rights sit somewhere else entirely, which is a structurally different arrangement rather than a lighter version of the same one.

There is also a specific hazard in this category that has nothing to do with time. Athletes are marketed to constantly, by people who are pleasant, well introduced, and frequently vouched for by a teammate. Deals that would never reach a stranger reach a locker room quickly. The defense against that is not working harder on diligence during the season, which is impossible, but narrowing the kind of thing under consideration to structures whose terms can be read in an evening and compared against each other.

Freedom Commercial Real Estate's founder played professional hockey, and the constraint was always the same one. The season came first, and whatever the money was doing, it had to do it without supervision.

Depreciation, and the Rule That Decides Whether It Helps

Depreciation is what makes real estate income behave differently from salary. The tax code allows an owner to deduct part of a building's cost each year without spending anything in that year, so a property can distribute cash and still report a loss. Whether a specific player can use that loss is a separate question with a specific answer.

IRS Publication 925 states that "a rental activity is a passive activity even if you materially participated in that activity, unless you materially participated as a real estate professional." A passive loss generally offsets passive income rather than wages or portfolio income, and amounts that cannot be used are suspended and carried forward until there is passive income to absorb them or the interest is disposed of.

The real estate professional exception is the one people ask about, and it closes for structural reasons rather than for lack of effort. Publication 925 requires both that more than half of all personal services performed in trades or businesses during the year be in real property trades or businesses in which the taxpayer materially participated, and that more than 750 hours of such services be performed. A player under contract performs the majority of their personal services in that sport, counting practices, meetings, travel, and required conditioning, so the first test fails no matter how many hours go into real estate on top of it. A spouse whose employment situation differs is a separate analysis, and one for a CPA.

The $25,000 special allowance does not rescue the situation either. It generally requires active participation, which limited partners typically do not have, and it is reduced by 50% of modified adjusted gross income above $100,000 and eliminated entirely at $150,000. A professional salary clears that ceiling long before the question comes up. The full mechanics of the suspension and release are set out in the guide to the passive activity loss rules.

What depreciation realistically does during a playing career, then, is shelter the real estate income itself and build a suspended balance that waits. It is not a lever against a paycheck. The wider framework sits in the guide to the tax benefits of commercial real estate.

What Changes the Year the Career Ends

Retirement inverts most of the arithmetic above in a single tax year. Wage income falls or disappears, the marginal rate falls with it, and income that used to be a supplement becomes the whole of it. Deductions that were stranded during the playing years are worth a different amount afterward, and the direction depends entirely on the individual's facts.

Three mechanisms move at once. A suspended passive loss is generally released in the year the entire interest in the activity is disposed of in a fully taxable transaction, and the released amount is applied first against gain from that disposition, then against other passive income, with any remainder treated as nonpassive. A deduction released in a low-rate year is worth less than the same deduction taken in a high-rate year, which cuts against deferral. And the real estate professional tests are measured annually rather than once, so the analysis is not permanent, though whether it changes for any particular person after they stop playing depends entirely on what they do next.

The part that is not a tax question is the one that matters more. During the career, income comes from work and capital is optional. After it, income comes from capital or it does not come at all. That is the transition the NFL bankruptcy research is describing, and it is why the useful version of this conversation happens during the second contract rather than during the first year of retirement, when the options have narrowed and the pressure to replace the income quickly is highest.

The same shape is now showing up earlier. Athletes earning name, image, and likeness income can experience a compressed spike before they ever turn professional, and for many of them that spike is the only one.

Everything in this section depends on facts specific to the individual, including filing status, residency, basis, existing passive income, and what work follows the career. Freedom Commercial Real Estate does not provide tax advice, and nothing here is tax advice. Whether any of it changes a particular athlete's outcome is a question for their own CPA or tax advisor.

What Passive Real Estate Does Not Solve

Passivity removes the operating work and nothing else. A private real estate interest generally cannot be sold on demand, transfers usually require sponsor consent, capital stays committed until assets are sold or refinanced, and distributions can be reduced or suspended where the governing documents permit it. For someone whose income will stop on a date nobody has told them yet, illiquidity is the feature that deserves the most attention rather than the least.

Tenant credit risk is unchanged. Rent has to arrive before anything downstream happens. Debt sits ahead of equity, so a loan maturing into a difficult market reduces distributable cash before it touches anything else. Sponsor risk is the exposure that is genuinely new, because every decision after the wire clears belongs to someone else, and a passive investor who later concludes the operator was the wrong choice usually cannot act on that conclusion.

Administration gets heavier rather than lighter, and for athletes it stacks badly. A fund taxed as a partnership issues a Schedule K-1 rather than a Form 1099, those forms frequently arrive after the individual filing deadline because calendar-year partnerships can extend to September, and a vehicle owning property in several states can create nonresident filing obligations of its own. An athlete already filing in a dozen states on duty days is adding state filings to a return that was complicated before any of this started, which is a reason to know how many states a structure touches before committing rather than after.

What remains to be evaluated is reading rather than managing, and it happens before capital moves. Eligibility comes first, and the thresholds are covered in the guide to what qualifies someone as an accredited investor in commercial real estate. The governing documents come second, including fees and the base they are calculated on, the order in which distributions are paid, and what the sponsor may do without a vote. The operator comes third and matters most, and the most informative question available is how the firm communicated during its worst reporting period.

Finally, passivity is not a hedge. Not operating a building does nothing to reduce the chance that a market moves, a lease is not renewed, or an investment loses money. It relocates the work, and with it the ability to intervene.

Freedom Commercial Real Estate is a Dallas-based commercial real estate firm that publishes investor education, and this guide exists because the athlete version of this question usually gets answered by whoever reached the locker room first. A question about anything above, or a topic worth taking apart next, is welcome at info@freedomcre.net, and the guide to passive commercial real estate investing linked earlier is the natural next read.

Frequently Asked Questions

Q: Can real estate losses offset a professional athlete's salary?

A: Generally not. IRS Publication 925 treats rental activity as passive, and passive losses ordinarily offset passive income rather than wages, with unused amounts suspended and carried forward. The $25,000 special allowance phases out between $100,000 and $150,000 of modified adjusted gross income and generally requires active participation, so it rarely applies at professional contract levels.

Q: Can a pro athlete qualify as a real estate professional for tax purposes?

A: Not while under contract. The test requires both more than half of all personal services performed in trades or businesses to be in real property trades or businesses in which the taxpayer materially participated, and more than 750 hours of such services. A player's practices, meetings, travel, and conditioning make the sport the majority of those services, so the first test fails regardless of real estate hours. A spouse's situation is analyzed separately.

Q: Does the jock tax change how a real estate investment is taxed?

A: Not directly, but it changes the administrative picture. Duty-day allocation already produces nonresident filings across the road schedule, and a fund owning property in several states can add more. That makes the number of states a structure touches worth knowing in advance, and it makes the interaction between the two a question for a CPA rather than something to work out in April.

Q: Is this argument specific to athletes?

A: The compressed earning window and the multi-state filings are sharpest for pro athletes, but the same math applies to doctors, dentists, attorneys, pilots, engineers, tech professionals, farmers, investment bankers, and other high earners who trade time for money. What changes is how many years the income lasts, which is covered for a longer career in the guide to why doctors invest in passive real estate cash flow.

Sources

• Internal Revenue Service, Publication 925: Passive Activity and At-Risk Rules
• Internal Revenue Service, Tax Inflation Adjustments for Tax Year 2026
• Carlson, Kim, Lusardi and Camerer, Bankruptcy Rates among NFL Players with Short-Lived Income Spikes, NBER Working Paper 21085

This article is for informational purposes only and is not an offer to sell or a solicitation of an offer to buy any security, nor investment, tax, or legal advice. Any offering is made only through official offering documents to verified accredited investors. Past performance does not guarantee future results.