Starting August 15, 2011, folks across the country began entering the diy Network’s Blog Cabin Giveaway that will award a lucky winner with a renovated, waterfront 1905 farmhouse on 16 acres on the Chesapeake Bay in Virginia. While this might be your dream home, beware because it also comes with a tax nightmare.
Overall, the house is valued at $650,000 with another $100,000 of home furnishings–for a total value of $750,000. The folks at the Internal Revenue Service view this as taxable income. As such, your total tax bill this year (assuming a family of four and no other income) would be $283,705–or 37 percent of the value of the prize. The taxes break down as follows:
- Federal income taxes = $231,882
- Virginia income taxes = $43,746
- Property transfer taxes (deed, trust, grantor) = $5,175
- Annual property taxes = approximately $2,903
The property taxes are estimated because we don’t know exactly what town the house is located in–only that it is in Mathews county. So, the estimate is based on county-wide property tax burdens provided by the Tax Foundation. And, of course, unlike the other taxes the property taxes are a perpetual expense.
Unlike the recent HGTV 2011 Dream Home in Stowe, Vermont, this giveaway does not include any cash to help cover the cost of taxes which is a major disservice to the winner. That means the winner must come up with over a quarter of a million dollars in a hurry. Though perhaps one could take out a home equity loan, assuming you’ve got the income to cover it.
However, I’m still left with one question: since they are giving you $100,000 in home furnishings, will the winner also be liable to pay Virginia’s use tax (which is the sales tax paid on items brought into the state, such as a catalog purchase) of 5 percent? Does anyone out there know the answer? If yes, then add another $5,000 to the tax bill.
To the lucky winner . . . enjoy your tax nightmare