This year’s HGTV 2014 Dream Home Giveaway is in Lake Tahoe, California. According to the HGTV contest rules, it comes with a home and furnishings valued at $1,760,000, $250,000 in cash, a $77,000 2015 GMC Yukon Denali, and a $2,400 membership at Schaffer's Mill Club--a total value of $2,089,400.
Of course, the $250,000 in cash will come in handy because if you win the dream home, be prepared for a hefty federal and state income tax bill which I have estimated in this post (this analysis excludes the multitude 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).
Nonetheless, the federal income tax bill alone comes to a whopping $764,040. California is the worst state to locate this contest in because it has the highest income tax rates in the country with a top rate of 12.3 percent. As such, you will owe the state of California another $229,234 in income taxes. If you plan on keeping this home, best be prepared to take on a second job or take out a home-equity loan to pay Uncle Sam and California. The $250,000 in cash barely covers California's tax take.
Fortunately, HGTV does provide an escape hatch by offering $1,050,000 in cash in lieu of taking possession of the home. You also get to keep the $250,000 in cash and the $77,000 Denali for a total escape pot of $1,377,000. If the winner opts for this choice, they will take home $753,462 free-and-clear after paying federal and state income taxes of $623,538. These numbers kind of makes you wonder who the real winner of this contest is--the contestant or the government?
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. If you have had your fill of paying taxes, you could buy a house in the handful of America’s tax havens left (all in New Hampshire) where there are no state and local individual income taxes, no state or local sales taxes and very low (in some case no) local property taxes.
Or, if New Hampshire is not your style, you can check out the tax burdens in other states with our unique tax burden app which shows tax burdens by state, by type and over time. Also, the contest for the 2014 diy Lakeside Blog Cabin will be announced soon and I will estimate the tax bill of winning that home as well . . . stay tuned. For those who might be interested, here is what California's tax burden looks like.
J. Scott Moody has over 13 years as a public policy economist with a specialty in tax policy. He has worked for numerous national and state-based think tanks such as the Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.