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.
The HGTV 2012 Green Home Giveway in Serenbe, Georgia had an estimated federal and state individual income tax bill of $282,807.
The HGTV 2012 Dream Home in Midway, Utah had an estimated federal and state individual income tax bill of $775,586.
The 2012 diy network Blog Cabin Coastal Retreat in Waldoboro, Maine had an estimated federal and state individual income tax bill of $260,827. It did not help that this home was located in high tax Maine with the sixth highest tax burden in the country.
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.
J. Scott Moody has over 18 years as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.