This year’s HGTV 2014 Smart Home Giveaway is in Nashville, Tennessee. According to the HGTV contest rules, it comes with a home and furnishings valued at $1,085,240, $100,000 in cash, a $40,000 2014 Lincoln MKZ Hybrid, and a $695.88 ADT home monitoring service for a total value of $1,225,936.
Of course, the $100,000 in cash will come in handy because if you win the dream home, be prepared for a hefty federal income tax bill and, depending on where you live, a state income tax bill which I have estimated in this post (this analysis excludes the multitude of other taxes such as any deed or transfer taxes and, most especially, the property tax which you pay year, after year, after year . . . well, you get the picture).
Overall, the federal income tax bill alone comes to a whopping $421,056. If you plan on keeping this home, best be prepared to take on a second job or take out a home-equity loan to pay Uncle Sam as the $100,000 in cash won’t cover it.
Calculating the state income tax owed is much more complicated. Tennessee does not have a general income tax (though they do tax interest and dividends). As a result, your tax bill will be determined in your home state. Unless you are fortunate enough to live in Tennessee or one of the other 8 states that do not levy a state income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington, and Wyoming), then you will have a tax bill that is significantly greater than 0. We do not attempt to calculate the tax bill that would be owed if you live in the other 42 states.
Fortunately, HGTV does provide an escape hatch by offering $600,000 in cash in lieu of taking possession of the home. You also get to keep the $100,000 in cash and the $40,000 Lincoln for a total escape pot of $740,000. If the winner opts for this choice, they will take home at least $511,374 after paying federal income taxes of $228,626.
These numbers kind of makes you wonder who the real winner of this contest is--the contestant or the government? My suggestion would be take the cash-option money and run. One could outright buy a very, very nice home with the cash and have zero debt. 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. Also, the contest for the 2014 diy Lakeside Blog Cabinwill be announced soon and I will estimate the tax bill of winning that home as well . . . stay tuned. Also, check out our tax analysis of the recent HGTV Lake Tahoe Dream Home.
For those who might be interested, here is what Tennessee’s tax burden looks like via our tax burden app.
J. Scott Moody has nearly 20 years experience 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 the American Conservative Union Foundation, Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.