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