Thursday, January 17, 2013
2013 HGTV Dreamhome Sweepstakes: Blessing or a Tax Burden?
Okay. If you haven’t heard so far this winter, HGTV is running their annual dream home giveaway. This year the special home is in Kiawah. I have been entering to win this home ever since the Sweepstakes was launched back on December 28th. I enter twice a day (once on HGTV and secondly on Frontdoor.com). I have viewed this home numerous times observing the different panoramic photos and wishing daily I will be the lucky winner. A 3,000 square foot coastal retreat seems like the great getaway from the rat race. As much as I covet winning this contest, the numbers guy in me encouraged a further drill down of the prize (benefits and costs). This analysis revealed painful expenses that hide within this too good to be true prize.
What does the lucky winner get? Grand prize is of course the Indigo Park dream home on Kiawah Island ($1.700,000.00 approximate value). Adding to this prize is $500,000 cash and a GMC Arcadia valued at $53,565. The total prize package is valued at $2,253,565. Then there is the cash option in lieu of accepting the home. The Cash option substitutes $1,000,000 for home, additional cash prize of $500,000 and the GMC Arcadia valued at $53,565. The total prize package valued at $1,553,565. The substitute cash option is a difference of $700,000.
But, there is more to it than that. The federal government is going to get their fair cut. Sweepstakes always appear sexy and enticing, but the winners will surely get gouged by federal taxes. This lucrative prize is considered taxable income. For simplicity, let’s say the feds will tax about one third. We will ignore the additional possibility that you have to pay state income tax (depending upon your native state). Let’s revise the prize picture.
You just won the HGTV dream home in Kiawah, $500,000 cash and a vehicle. You can expect to pay in taxes about $743,676 (one third of $2.2 million). That is an extremely heavy tax burden requiring liquid cash immediately. You already have $500,000 covered per the cash prize, but now you need an additional $243,676 to pay that immediate tax burden. I guess one option is to sell your other home and move to Kiawah full time or take equity out (cash out refinance) on the new Kiawah home to pay the initial taxes. Now you have a mortgage payment again. Then there are the excessive real estate taxes and payments for assessments and services (Kiawah fees). Seems like a lot of stress to endure that gets lost in the beauty of that large expansive deck, pool, game room, and beautiful marsh view from the back..
So suppose you opt for the cash option. Your total winnings are $1.5M (car included) but you will get hit with tax of about $512,676 which leaves you almost a million.
As dreamy as this Indigo Park home is, I think I will take the $1.5 million cash option. Even with the tax hit, I would still have close to a million bucks to spruce up my current home, purchase a Kiawah villa (for about a quarter of the dream home price) and enjoy driving down to the low country three or four times a year in my new SUV. So I will keep entering every day!