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

Note: To see analysis of the most recent HGTV home giveaways, please visit my new website Key Policy Data.

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.

Income Tax Consequences of HGTV Urban Oasis Home

Trump Tower in Chicago
Creative Commons License photo credit: John Picken

As promised, this post follows-up on “The diy Network’s Blog Cabin Giveaway and Tax Nightmare” post from a few days ago. However, I’ve changed the approach to the tax calculation to focus just on the income tax ramifications for two reasons:

  1. The income tax simply dominates the overall tax consequences of winning the prize. Trying to determine the transfer taxes and other applicable taxes is simply not worth the effort as it is nothing more than a rounding error when compared to the income tax.
  2. The HGTV Urban Oasis Home is offering the winner the choice of the home or $675,000 in cash so I really want to focus on that trade-off.

Overall, the HGTV Urban Oasis Home is valued at $785,000 and would result in an income tax bill to Uncle Sam of $235,382 (assuming a family of four) and to the State of Illinois of $38,850–HGTV should have held this contest last year before the new 5 percent income tax rate kicked-in which would have saved the winner $15,540. As such, the total income tax bill comes to $274,232 or 35 percent of the homes value. And like the Blog Cabin Giveaway, HGTV is not offering any cash to help offset this tax bill.

Fortunately, HGTV does provide an escape hatch by offering $675,000 in lieu of taking possession of the home. If the winner opts for this choice, they will take home $444,769  free-and-clear and you won’t have to live in one of the highest cost-of-living areas in the country–thanks, in part, to a shockingly high sales tax of 9.75 percent!

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 $459,900. 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.

America’s Tax Haven–No Income, Sales or Property Taxes

No New Taxes!

Yes, you read that right, there are only a few small areas left in the U.S. where you can enjoy no state or local income taxes, state or local sales taxes and no local property taxes . . . can you guess where?  New Hampshire, of course! 🙂

First, the list gets really small quickly when you consider only two states have no state-level income or sales tax–Alaska and New Hampshire.  However, Alaska allows localities to levy their own sales tax (known as a local option sales tax).  According to the Tax Foundation’s State Business Tax Climate Index (pdf), the weighted-average of Alaska’s local sales tax yields an equivalent state-wide rate of 1.11 percent.

So that leaves New Hampshire in the no state or local income and sales tax pole position.  But wait there’s more . . . there are areas of New Hampshire where there are no local property taxes.  You can see from this data from the New Hampshire Center for Economic Policy that there are 19 unincorporated areas with a property tax mill rate of zero–I’ve also plotted them into a Google map below (you may need to zoom out).

There are also other areas that are unincorporated and have a close to zero property tax mill rate.  The most famous is probably Hale’s Location where they tout the “Hale’s Location Country Club Estate: Lakefront to Mountain side and all the fairways in between!” The 2010 property tax mill rate in Hale’s Location was only 3.04.  And there are 10 other places with single digit mill rates.

Of course, there is a catch.  Many of these places are remote and/or mountainous with few people.  Neither homes nor land come up for sale very every often and when they do they command a price premium.  Yet, there may be hope to snag some property as one of my favorite places, Millsfield, New Hampshire (adjacent to the amazing Balsams resort) which has a mill rate of zero, has this property for sale–400 acres for $1 million.  Surely there is a developer out there waiting to create the next Hale’s Location Country Club Estate.  Anyone?

Finally, recent developments in New Hampshire have resulted in the enactment of a state-wide property tax stemming from a ruling by the State Supreme Court on education funding–really it’s a back-door plot to getting an income or sales tax, but I digress.  The rate in 2010 was set at 2.19 mills, so it’s not too onerous.  This is the only thing preventing a full sweep of the big three taxes in these locations.


View New Hampshire Tax Havens in a larger map