Income Tax Consequences of Winning the 2012 HGTV Urban Oasis in Miami, Florida

Picture of 2012 HGTV Urban Oasis in Miami, Florida

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

This year’s HGTV 2012 Urban Oasis Giveaway is in Miami, Florida. According to the HGTV contest rules, it comes with a home and furnishings valued at $900,000–interesting, this home does not come with any cash as the recent 2012 HGTV Green Home Giveaway did ($100,000 worth).

Of course, the cash would have come in hand because 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).

Fortunately, thanks to the benefits of tax competition between the 50 states, there is no personal income tax in Florida . . . maybe that’s why they didn’t include any cash in the prize? For instance, the 2012 diy Blog Cabin Coastal Retreat is in high-tax Maine and the state income tax increased the total tax bill by 27 percent.

Nonetheless, the federal income tax bill alone comes to a whopping $274,900. If you plan on keeping the home, best be prepared to take out a home-equity loan to pay Uncle Sam.

Fortunately, HGTV does provide an escape hatch by offering $750,000 in lieu of taking possession of the home. If the winner opts for this choice, they will take home $527,701 free-and-clear after paying income taxes of $222,400.

My suggestion would be take this money and run. One could outright buy a very, very nice home with the cash and have zero debt. You could certainly buy that other home in Florida which is a pretty low-tax state. However, in Florida you would still have to deal with a sales and property tax. On the other hand, there are 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.

Income Tax Consequences of Winning the diy Blog Cabin 2012 Coastal Retreat in Waldoboro, Maine

Picture of diy 2012 Blog Cabin Coastal Retreat in Waldobor, Maine

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

Maine is world famous for its lobster, coastline and lighthouses. However, Maine is also infamous for its high tax burden.

Unfortunately, its not just the location of the 2012 diy Blog Cabin Coastal Retreat in Waldoboro,  Maine that will create tax sticker shock for the winner. The rules of this contest leave the winner few alternatives other than to suck-it-up and pay the tax man or sell the home (and still pay the tax man).  From the rules:

Real estate transfer taxes, deed recording charges and closing costs, if not the obligation of the Developer pursuant to an agreement with DIY (the “Home Contract”) to acquire the home, shall be the sole responsibility of the Grand Prize Winner, as will all future real estate taxes and other expenses related to the maintenance of the house. Title insurance and homeowner’s hazard and liability insurance shall be the sole responsibility of the Grand Prize Winner. Condition of title to home shall otherwise be as set forth in the Home Contract.

Total ARV of the Grand Prize is $699,500

All costs, taxes, fees, and expenses associated with any element of a prize not specifically addressed above are the sole responsibility of the Grand Prize Winner. All federal, state and local taxes on prize are the Grand Prize Winner’s responsibility. The Grand Prize Winner will be issued a 1099 tax form for the ARV of the Grand Prize.

Overall, the federal and state income tax bill comes to a whopping $260,827 (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).

It is too bad the contest is not being held in 2013 because Maine’s top personal income tax rate will drop from 8.5 percent o 7.95 percent which would save the winner some serious coin.

And unlike previous contests, such as the HGTV 2012 Green Home Giveaway or the HGTV 2012 Dream Home Giveaway, there is no escape clause that will let you take cash in lieu of the home. So you are stuck with the home and the tax man . . . have fun!

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

photo by: macprohawaii

The State of America’s Private Sector III

I’ve gotten a few requests about Ohio’s private sector since Amity’s column opens with a discussion of President Obama’s recent trip to Ohio.  Below is chart comparing Ohio with New Hampshire.  In many respects, this is an even starker contrast since OH’s per capita personal income and private sector were greater than NH’s until the late 1970s.  First OH’s private sector plunges below NH’s and then a few years later so does OH’s per capita personal income.  Is it a mere coincidence that all of this occurs in the years immediately following the enactment of OH’s income tax in 1971?  You decide.

Ohio's versus New Hampshire's private sector and per capita personal income