To an extent, no one cares about you renting one room out, or the entire house in one fell swoop. But more than that, and you run afoul of licensing and zoning laws. Most houses are zoned single-family, not for apartments. And, usually apt buildings need a permit, pay a annual fee, and are subject to licensing and inspections. San Jose does occ crack down upon dudes renting out a house to 4-5 families/tenants. Really, there are many many things you can’t do on your “own property”. And for good reasons.
I have checked into these home auctions, tax-wise. 1st: the home is always over-valued. But you’d still have to pay taxes on the entire amount, as winnings. That’d be something like 36% Federal and also State.
No, when you sell a house, the capital GAIN is the purchase price less your basis in the house; the basis, in this case, should be the fair market value at the time you won it.
Slight hijack here, but I always find it weird in these kind of threads that competition/lottery prizes are taxed in the USA. It seems totally unfair to win something and then hand over a huge chunk of it.
Here in the UK, such prizes are tax-free - you keep all of what you win - and I’d always assumed that was the norm. Is it the UK or the US that’s the odd one out?
In Spain those prizes are taxable as income, as well as becoming part of your “patrimonio” (if the prize is something that would normally get taxed under “property” taxes, it will); the only lottery which is not taxable as income is state lotteries, which is one of the reasons why there is a ruckus over the current attempt to privatize Lotería Nacional. There is a special yearly raffle from LN, “the gold raffle”: prizes are bars of gold instead of cash, and the money collected goes to the Red Cross; years ago, some genius declared that gold “taxable as income” on accunt of the Red Cross not being the government and the resulting immediate outcry was… loud, to say the least; he had to back up.
Sometimes the group organizing the raffle will include all or part of those taxes; which ones they include must be listed in the raffle info, and the raffle must be authorized by the government. There have been cases like someone winning an airplane in a TV show and being driven to bakruptcy by it.
Actually, with the National Lottery, you pay the tax on the ticket (it’s included in the price), not the prize. The government gets their money either way!
Just to expand on this a little in case it was not obvious (as it would not have been obvious to me before I learned the bit of trivia I am about to explain): in Thailand white elephants (as in actual elephants, coloured white) are (or perhaps were?) all the property of the king. As such, you are not allowed to kill them, nor even put them to work, but you have to pay for their upkeep. Thus anyone who owned an elephant herd which gave birth to an albino elephant was in a bit of a fix, as they had a useless but expensive object on their hands, for a very long time. Hence the origin of the term “white elephant”.
How do you figure that if I win a house that my cost basis is the fair market value, and not the $150 I spent on the raffle ticket? In other words, I think you’re incorrect.
Yeah, except your “gambling winnings” in this case are taxable as income, i.e. the difference between your lottery ticket’s cost and what you won with it.
Actually, you’re first stop should be to a cell phone store. Buy a new pay-as-you-go phone and only give it to immediate family members and close personal friends that you trust.
Disconnect or ignore all incoming calls on your previous lines.
While you’re at it get a new e-mail address and delete any other accounts you may have.
If the house winnings work like stock options. The difference between what you payed ($150) and the fair market value the day you get title is ordinary income. The difference between fair market value the day you won and the day you sell is capitol gain or loss.
Yes, this is correct. (Except it’s capital - a not o).
There are some tricks you could try to reduce tax. The house could be donated to a charitable remainder trust, permitting you to take a tax deduction for the house right now. The terms of the trust would permit you to live there (provided you pay upkeep, etc.) and the charity keeps the house after you die. The catch there is that you can’t write off more than 50% of your income to charity in any one year, so you’d still pay tax on $1.1 million. (But, you’d carry over the remaining $1.1 million as a write-off into future years, so you’d be pretty much set in terms of minimizing income tax for the rest of your life.)
Either way, you could always take out a mortgage to pay the tax. Since there’s plenty of equity in the house, I don’t think you’d have much trouble qualifying.
You could also try your luck with the IRS collections process. Sometimes, they’ll just put a lien for the taxes on a house, rather than trying to seize assets or force a sale. A tax lien wouldn’t be as good as a mortgage, but not such a bad thing either - it would defer payment on the taxes until you sell the house.
In essence, a charitable remainder trust is a way to give things to charity but keep control over them, temporarily, as well. E.g. you can take a tax deduction now, but the charity only gets the item after you die.
