Win a Mansion! - No thanks?

So, here in my city, about twice a year, there are raffles to win a nice house/mansion. The charities are very reputable - the raffle tickets are expensive ($150 per). The grand prize is always some beautiful house worth over $1,000,000 (the most recent one is listed at $2,200,000). They also offer a lesser cash alternative. And there are multiple lower denomination prizes, cars, cash, etc. The raffle states they will only sell 35,000 tickets, and 1 in 10 tickets will win some prize.

OK, sounds good, maybe I’ll pony up, yah? If I win, I move in to a mansion! Woo to the hoo! Right?

…not so fast…if I do get this house, I gotta pay something eventually…income tax on the winnings?..property taxes? Whaaa:confused:?? And property insurance, and utilities, and upkeep…

Here’s my question - Could I even afford to live in this free house? I’m not an accountant, or real estate whiz, can someone jump in here with back-of-the-napkin numbers as to what a typical free $2,200,000 house would really cost?

Property taxes are usually, what, around 1%? That’d be 10 grand a year right there. And you generally have to pay income tax on contest winnings, though it might be more complicated for a house. Assuming that it works as normal income tax, though, it’d be enough to put you into the top bracket of 35% for that year.

For utilities, some of them will scale up, and some won’t. You probably won’t spend much more on electricity, provided that you turn off the lights when you leave a room, but all else being equal, it will cost more to heat/air condition a large house than a small one. Then again, though, maybe one of the reasons that the house is worth so much in the first place is that it has good insulation, double-paned windows, and so on, which would tend to decrease HVAC costs.

Same story for upkeep costs: All else being equal, the larger house will cost more, but some of the price might reflect quality of construction, rather than quantity. And insurance will scale up with value, but might also be less for being in a better neighborhood.

Generally whenever you win a prize you need to claim the value of the prize as income. You are allowed to deduct the cost of your raffle ticket. That’s $150 off of the value right there.
Not being wealthy I have no concept of the cost of insuring the house. Using this website http://tax.fizber.com/ I show that for my community the yearly property taxes would be about 28k.

Well, you could always take in some very select lodgers to pay the extra taxes.

You need to tell us where you are to get a good an answer. Property tax rates are all over the place depending on the state and locality. In my area, you have to pay about 1.5% a year of the value of your house alone in property taxes or you just can’t have it any more. It will taken from you and sold if you don’t have the money. At similar tax rates, the property tax for your $2.2 million dollar house is $33,000 a year every year just for the right to hold onto it. That isn’t the whole answer though. Expensive houses tend to be large and costly to maintain. Add in whatever you want for maintenance for the house itself but also for things like a pool and lawn. You also need a big pile of money on hand for things like roof replacement when the time comes not to mention furnishing it and paying for the utilities.

Property taxes plus only the most basic upkeep will be in the high five figures a year minimum so you can only afford that if your current mortgage + maintenance in total is around that.

It is a nice bonus but most people still couldn’t afford to live in it if they won and keep it maintained well.

OK, using the link you provided, the property taxes come in at $15,180 annual/$1,265 month - I could live with that…with no mortgage to pay, yeah.

However, income tax! {{{{shudder}}}}

…according to this site winnings are taxed at the marginal rate
investopedia. So, it could be 25% up front - on $2.2MM that would be $550,000. :eek::eek::eek:

…soooo, maybe we won’t be moving in…

The marginal tax rate of 25% will not be enough to cover the taxes. You will need more than that when the 15th roles around. But you can just get a mortgage. It should not be that difficult to get a mortgage with more than 50% equity.

Convert it to apartments.

One of the local charities runs something similar, but there’s a cash option. Either a home worth $2 million or $1.5 million in cash. And there’s always the option of taking the home and immediately putting it on the market.

You could always sell it. With tax, upkeep, mortgage or whatever else you have to spend, you won’t end up with 2.2 million, but you’d end up with enough for hookers and blow, and some money to waste as well. My personal motto is “If it’s free, it’s for me.” A $2.2 million asset with strings attached is still an asset.

Our local charity includes a cash prize to pay property taxes for the first year

If you win it, and pay income tax on the winnings, and then immediately sell it, will you owe capital gains? Your $150 become $2.2 million, after all.

The problem with selling it is TIME. Multi-million dollar houses typically take a year or more to sell.

During that time, you have all the expenses of owning the place, of which the property tax is the least of your worries. Utilities are likely to be quite hefty, homeowner’s insurance likewise, and general maintenance and upkeep. Going to have to keep it pretty clean to keep showing it off that whole time.

Cutting it into apartments is usually impossible (zoning) or extremely expensive. You’d have not only the original expenses, but now you have the mortgage on the construction loan too, and the expense and time of selling multiple units.

OK, so now I have a mortgage for $550K plus (to pay the income tax), and the property taxes, and insurance - sheesh, some prize…

Every year, HGTV gives away a “dream home.” (Or they did, anyway; I haven’t watched in a while.) The winners almost invariably sell it immediately.

A few years ago I read an article (don’t remember which magazine—apologies) about the one guy who insisted on living in the house he’d won. Basically, it drove him into bankruptcy.

Similar lotteries here too. I usually enter the one for the hospital that took/takes care of my son (was born with a congential condition that required a long stay at birth and occassional bringing him in for maintenance afterward) as I can’t say enough good things about them.

The FAQ on this lottery website said that the only costs the winner would have to pay is the “regular expenses associated with home ownership” (which I took to mean utility bills and the like), they mentioned that other taxes are taken care of (since the draw has already occurred (and I didn’t win :frowning: I love expensive houses!) I can’t find the exact wording on the contest website … )

Is there a reasonable expectation someone would actually buy it for $2 million, or would someone realize the fix you’re in and lowball you? I realize that houses (probably) don’t depreciate as fast as cars, but, still, you have to imagine that anyone buying a house that expensive would be (or hire) a pretty good negotiator.

Is it illegal to take in lodgers on your own goddamn property now? My current living situation entails renting a room from a private homeowner (though nothing close to a mansion). Are you saying this might be illegal if the home happened to be larger? That’s ABSURD.

You wouldn’t need to physically change anything about the home. Just sublet it out. I refuse to believe that a property owner cannot sublet his own property however the hell he wants to.

Cecil had a column on a similar situation a while back. You mentioned the raffle has a lower value cash alternative. How much lower? If it’s just barely lower, then maybe as Cecil points out the house offer is more a marketing tool than anything else.

As far as I know regarding the laws here, any house you sell beyond your personal dwelling will be subject to capital gains taxes, because anything beyond the house you’re living in is rightly assumed to be a business venture. I think you could get around capital gains by selling the house you’re currently living in and moving into the larger one (taking the - I assume - much smaller hit), living in the larger one for however long it takes to establish it as your primary residence for tax purposes, then sell it and sock the money away. For the record, lottery winnings are not taxable in Canada (again, as far as I know). One of the first stops after winning a multi-million dollar house is your tax lawyer/accountant. :slight_smile: