Income Tax Consequences of Winning HGTV 2012 Dream Home in Midway, Utah

2010 GMC  Terrain
Creative Commons License photo credit: Hammer51012

Another year and another HGTV Dream Home. This year’s HGTV 2012 Dream Home is a river-front home in Midway, Utah. According to the HGTV contest rules, it comes with a home and furnishings (valued at $1,500,000), cash ($500,000) and a 2012 GMC Terrain SLT2 ($38,755, shown above) for a grand package valued at a cool $2,038,755.

If you win the dream home, be prepared for a hefty federal and state income tax bill (this analysis excludes the myriad 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 and state income tax bill comes to a whopping $775,586. Even after using the $500,000 in cash, you will still be left with a tax bill of $275,586 . . . maybe the IRS will let you pay on an installment plan?

Fortunately, HGTV does provide an escape hatch by offering $800,000 in lieu of taking possession of the home, plus the $500,000 in cash and vehicle–for a grand total of $1,338,755. If the winner opts for this choice, they will take home $843,169 free-and-clear after paying income taxes of $495,169.

My suggestion would be take this money and run. One could outright buy a very, very nice home with the cash. For example, check out this home in beautiful Hale’s Location, New Hampshire listed for $729,000 and still have enough left over to put into your IRA. Hale’s Location is one of a handful of America’s tax havens left (all in New Hampshire) where there are no state and local income or sales taxes and very low (in some case no) property taxes. In fact, according to the listing, the property taxes are a mere $1,887 per year.

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