No I didn’t win a house. However they always have a “Million dollar house give away” at least once a year around here and it brought up this question.
If a person wins a million dollar house is that not considered income? And if so would this not thrust them into a much higher bracket and would they not owe 15-25% of the total of the house?
So a person making 75K a year buys a 100$ ticket and wins a million dollar home. They then owe 200K in income taxes and are saddled with a 20K a year property tax bill. So is there some other benefit to giving away a “Home” that I’m not seeing because it seems to me that anyone that were to win it that wasn’t already living in a million dollar home and had 200K sitting around would have to sell it right away to cover the expense.
I believe they will owe the taxes, just like if you win a car. I wonder if there is also a cash out option or they would probably just try to sell if (good luck with that right now).
The value of the home is taxable. A family of four making $75,000 would pay federal taxes of $7800. Add in $1MM of prize income and they would owe about $340,000 of federal taxes. As I see it, they have a couple of options: sell the house they won and use the proceeds to pay the taxes and end up with cash left over; or sell their existing home and use the equity in it (assuming they have equity) to pay a portion of the tax and borrow the rest via a mortgage on the new house.
Assuming the winner doesn’t have a lot of other cash/investments/whatever, those are probably the best two options.
I think the winner of the HGTV Dream Home almost always ends up selling. Maybe live in the house for a while since you don’t need to pay the taxes until next April 15…but I think eventually pretty much all of these winners sell the house.
but I think eventually pretty much all of these winners sell the house.
I would think so. I hadn’t thought about selling the existing house, but even that would mean you’d end up with a tax bill and mortgage that was larger than what you currently have unless you have quite a bit of equity in your current home.
I’ve been hearing these “Give aways” for years and then this morning it struck me as a “How is that gonna work?”.
No way in hell could I afford to keep the house as I’d definitely end up with a larger mortgage than I have now just to pay the taxes.
I’m guessing the “Million dollar house” is probably inflated to start with and in this market is probably worth 750K or so. Assuming the tax bill is based on that you’d owe 300K’ish so you’d probably walk away with 400-425K after paying taxes closing costs etc…still a nice return for a 100$ ticket though
It could also be “grossed up” in order to cover the taxes. For instance, many of my bonuses have been $XK and I take home 100%, because the bonus is actually $XK + Taxes. So they could be given the house + the money for the taxes (which would need to be the money for the taxes, after taxes)
I think several of them that I’ve heard actually advertise the “Cash option”. I was just wondering what the point is of offering the home when 99% of the people will take the cash.
My guess is that there’s something else going on for the builders, relators and their “Tax” benefits as well as just some “Cool” factor to sell the whole thing.
Every winner of the HGTV HAS sold the house. Some may have kept them for a year (prior to paying the tax the next spring), but every single winner for a number of years has not been able to or chosen to live there. The rules on the contest do say that you are responsible for the tax, so they do not “gross up” for the winner (I am familiar with this as well as bonuses/incentives/expenses i.e. relocation).
I am amazed that people have not attempted to rent out the home as a 2nd property. Of course, that means they still have to pay tax on it, but depending upon the equity in their home (luckily, here in So.Cal we still probably have $350k of equity in our home that would allow us to pay off the taxes).
I do not believe it is considered “income” - you only pay the usual sales/real estate taxes. If you sell the property, then you would be taxed again. It doesn’t keep one from trying, because even after all the hassle, you could still bring in a few hundred thousand dollars, which put in the proper investment for the 20-40 years (depending upon where you are in your working career) could easily translate into your retirement.
I am amazed that people have not attempted to rent out the home as a 2nd property. Of course, that means they still have to pay tax on it, but depending upon the equity in their home (luckily, here in So.Cal we still probably have $350k of equity in our home that would allow us to pay off the taxes).
Once you consider maitenance costs, shrinkage, insurance, taxes and HOA fees, and probably management company fees, it’s really really hard to be cashflow positive doing short term vacation home rental, even if you’re talking a fairly low purchase price. (or in the HGTV case, a huge tax bill instead of the mortgage)
I don’t know anyone down here, including people who bought in the 90s, who can say they’re actually cashflow positive on that kind of vacation rental. They’re generally just happy to have the renters cover a good chunk of things.
I guess it depends upon if you are doing the short term vacation rental, or something a bit more feasible? (like long term rental).
All the fees you mentioned depend upon the location, the HOA, etc…and yes, FL is quite a bit different than CA The tax bill on the Sonoma HGTV Dream Home will probably be greater than $150k, and I haven’t looked up property taxes in that neck of the woods (or vineyards as they may be called up there).
(like long term rental).