HGTV Green Home in Serenbe, Georgia will Cost Lots of Green–for Taxes that is!

Picture of HGTV Green Home in Serenbe, Georgia

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

This year’s HGTV 2012 Green Home Giveaway is in Serenbe, Georgia. According to the HGTV contest rules, it comes with a home and furnishings (valued at $650,000), cash ($100,000) and a 2012 GMC Terrain SLT2 ($38,535) for a grand package valued at a cool $788,535–though not quite up to par to the $2,038,755 value of the HGTV Dream Home in Utah.

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 $282,807 (note: actual federal income tax will be slightly less once inflation adjustments are taken into account but that won’t be updated until later this year). Even after using the $100,000 in cash, you will still be left with a tax bill of $182,807 . . . maybe the IRS will let you pay on an installment plan?

Fortunately, HGTV does provide an escape hatch by offering $400,000 in lieu of taking possession of the home, plus the $100,000 in cash and vehicle–for a grand total of $538,535. If the winner opts for this choice, they will take home $358,228 free-and-clear after paying income taxes of $180,307.

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 $429,000 (a cash offer might get that down to $358,000 in today’s weak real estate market). 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 $1,495 per year.

2009 HGTV Dream Home Winners Sell House . . . Thanks to Taxes

Following on my previous blog which estimated the tax costs of winning the 2010 HGTV Dream Home in Stowe, Vermont, this news story confirms the difficulty of hanging on to the HGTV house due to . . . TAXES!

A Florida couple who won the 2009 HGTV Dream Home has sold the property back to developer Steve Ledson after deciding it was too expensive to maintain and too far from their grandkids . . . Cheryl Smith said their taxes on the winnings would have been up to $500,000. Property taxes and assessment would have been an additional $25,000 a year. Smith said her husband, a retired engineer for Ford Motor Co., would have had to go back to work to support their Dream Home.

Other winners have tried to hang onto their homes as well, but with little success:

Of the 13 Dream Homes HGTV has given away, only two winners managed to keep their homes for any length of time. A Thousand Oaks family held on to their home for eight years before selling, but another couple had to auction off their Dream Home in Texas last year after running through their savings and taking out a loan to pay the taxes. [emphasis added]

In the end, the old saying still applies–“The Tax Man Cometh and The Tax Man Taketh Away.”

Win Dream Home, Go Broke Paying Taxes

Art Woolf has an amusing post “A Taxing Gift” which shows how winning HGTV’s 2011 dream-home in Stowe, Vermont will actually leave you with a tax bill that will leave you $500,00 in the hole.

What the article doesn’t tell you is what it will cost you to win.  As a public service, Vermonttiger presents the numbers:

1.  Vermont Purchase and Use Tax on a $50,000 vehicle at 6% = $3,000

2.  Vermont Property Transfer Tax on a $1.5 million house at 1.25% = $18,750

3.  Annual Property taxes on a $1.5 million house in Stowe = $24,350

4.  U.S. Income Tax on $2.05 million (house + cash + car) at 2011 tax rates

a.  assume Bush tax cuts do not expire as per Obama compromise plan = $678,000

b.  assume Bush tax cuts expire =  $772,000

5.  Vermont income taxes = $187,400

The lucky winner of the house will pay about $1 million in taxes in 2011 on their good fortune.  With the $500,000 cash that is part of the winning package, the winner will only have to come up with an additional half million bucks.  Maybe they can rent out some of those extra beds to help pay the taxes.

To continue the story: you would need to sell the house to pay your taxes . . . but with the slow housing market you may not sell it in time (or at all) to pay your taxes . . . the house is taken by the IRS and auctioned for less than the taxes you owe . . . the IRS then garnishes your wages for the rest of the tax bill.  If that’s not Wealth Alchemy in motion I don’t know what is!

Update: 2009 HGTV Dream Home Winners Sell House . . . Thanks to Taxes