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Estimating the Tax Impact of Winning the 2014 diy Lakeside Blog Cabin

Nov 25, 2013


diy_network_2014_Blog_Cabin_in_Winter_Haven_Florida.jpg

One of the fun and popular articles I wrote on my previous blog, Wealth Alchemy, was to estimate the tax impact of winning a home via HGTV or diy network. While winning such a home may seem to be a dream come true, the reality is that it often turns into a tax nightmare.


It was just announced that this year's diy network 2014 Blog Cabin will be in Winter Haven, Florida. The good news is that it is in Florida which does not have an individual income tax so there will be no state tax bill for winning this home. Florida also has the eighth lowest tax burden in the country. [Update: There would be no state income tax bill if the winner lives in Florida or other state with no income tax. Otherwise, the state income tax is indeterminate since we need to know the winner's state of residency. See comments for more information.]


That being said, it's really the federal tax bill that is the whopper. While we don't yet know the details of the giveaway, the winner is often provided two ways to pay the tax bill.


  • First, part of the prize is cash which, after-tax of course, can be used to pay taxes. 


  • Second, there is often a cash in-lieu of the house which the winner can take--with this option the winner can simply take the cash and run, again, after paying taxes on it.


To provide some context on the size of the estimated tax bill, just look at the one of the last giveaway in Florida--the 2012 HGTV Urban Oasis Giveaway in Miami, Florida. The federal individual income tax bill alone came to a whopping $274,900. If you plan on keeping the home, best be prepared to take out a home-equity loan to pay Uncle Sam since the giveaway did not include any cash.


Fortunately, HGTV did provide an escape hatch by offering $750,000 in lieu of taking possession of the home. If the winner opts for this choice, they will take home $527,701 free-and-clear after paying income taxes of $222,400.

Other examples included:

 




Oh, and keep in mind that this does not include your property tax bill which you will have to pay year, after year, after year . . . well, you get the picture. Fortunately, the Tax Foundation's property tax calculator shows that Polk County's (where Winter Haven is located) has an average tax burden as a percent of the median home value at 1.04 percent. Though on a million dollar home that can add up quickly.


As soon as the details of the giveaway are made public, we will post our estimate of the tax bill that will be due. In the meantime, check out diy's announcement video . . . and start saving now to pay your tax bill if you plan on entering the contest.

 



Category: Tax Burdens

J. Scott Moody

J. Scott Moody has over 17 years as a public policy economist with a specialty in tax policy and has over 170 publications. He has worked for numerous national and state-based think tanks such as State Budget Solutions, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.


 


 

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