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This year’s 2016 DIY Network’s Blog Cabin is located in Panacea, Florida. According to the DIY Network contest rules, it comes with the home and furnishings ($854,657 value), $50,000 in cash, a 2016 Mazda CX-5 ($33,725 value), and a John Deere Compact Utility Tractor ($22,790 value) for a total value of $961,172.
Of course, the $50,000 in cash will come in handy because if you win the blog cabin, be prepared for a hefty federal individual income tax bill and, depending on where you live, a state individual income tax bill which I have estimated in this post.
This analysis excludes the multitude of other taxes such as any real estate, deed or transfer taxes and, most especially, the property tax which you pay year, after year, after year . . . well, you get the picture. As they state in the rules: “All costs, taxes, fees, and expenses associated with a prize or the acceptance and use of any element of a prize not specifically addressed above are the sole responsibility of the winner. All federal, state, and local taxes on prize are winner’s responsibility. The Grand Prize Winner will be issued a 1099 tax form for the ARV of the prize.”
Overall, the federal income tax bill for the 2016 DIY Network #BlogCabin comes to a whopping $316,033 or 32.9 percent of the value of the home. (Click to Tweet) (see assumptions below) If you plan on keeping this home, be prepared to take on a second job or take out a home equity loan to pay Uncle Sam as the $50,000 in cash won’t cover it.
Calculating the state income tax owed is much more complicated. Florida does not have a general individual income tax. As a result, your tax bill will be determined in your home state. Unless you are fortunate enough to live in Florida or one of the other 8 states that do not levy a state income tax (Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming), then you will have a state individual income tax bill that is significantly greater than 0.
Table 1 shows the state individual income tax bill that would be owed if you live in the other 41 states. The worst state to live in is be California with a tax bill of $103,069 which brings the combined state and local tax bill to $419,102, or 43.6 percent of the value of the home. Following closely behind are Hawaii (combined tax bill of $409,173, 42.6 percent of the value of the home) and Minnesota (combined tax bill of $400,268, 41.6 percent of the value of the home).
Besides the 9 states without an individual income tax, the next 3 best states to live in are North Dakota (combined tax bill of $342,555, or 35.6 percent of the value of the home), Pennsylvania (combined tax bill of $345,541, or 35.9 percent of the value of the home), and Alabama (combined tax bill $347,180, or 36.1 percent of the value of the home).
Interestingly, unlike other contests, DIY Network does not provide an escape hatch by offering cash in lieu of taking possession of the home.
These numbers kind of makes you wonder who the real winner of the 2016 DIY Network #BlogCabin is--the contestant or the government? (Click to Tweet) My suggestion would be to sell the home and outright buy a nice home with the cash and have zero debt.
However, if you decide to keep the home it is very likely that you will need to take a home equity loan on the house (unless you have a few hundred thousand lying around). Using the worst case scenario (California), a $369,102 ($419,102 – the $50,000 in cash) home equity loan over 30 years at 3.23 percent variable interest would cost you $1,602 a month. Though this begs the question with the 2016 DIY Network #BlogCabin—have you really won a house or a sizable mortgage? (Click to Tweet)
If you have had your fill of paying taxes, you could mimic the Free-Staters and buy a house in the handful of America’s tax havens left (all in New Hampshire) where there are no state and local individual income taxes, no state or local sales taxes and very low (in some case no) local property taxes.
Or, if New Hampshire is not your style, you can check out the tax burdens in other states with our unique tax burden app which shows tax burdens by state, by type and over time. If your tax situation is more complicated than what is show here, you can use this individual income tax calculator (thanks to icalculator) to make a more precise estimate.
Also, check out our tax analysis of the recent HGTV 2016 Smart Home, HGTV 2016 Dream Home, HGTV 2015 Urban Oasis, DIY Network 2015 Blog Cabin, HGTV 2015 Smart Home, HGTV 2015 Dream Home, HGTV 2014 Urban Oasis, DIY Network 2014 Blog Cabin, HGTV 2014 Dream Home and HGTV 2014 Smart Home.
Tax assumptions: The tax analysis uses a married couple with two children taking the standard deduction and is based on 2016 law. However, actual income tax paid may be different if new tax laws have taken effect, especially retroactive taxes. Also, the federal government and most states adjust many elements for inflation which might result in a slightly lower tax bill than reported here.