Win a Mansion! - No thanks?

[elfkin477]

@Shagnasty

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..

If the property tax rates are similar. Here the property tax on that 2.2 million dollar house is $50,000.

[Balthisar]

@Cat_Whisperer

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 was all prepared to argue, “but what about second/vacation homes? Those aren’t business ventures.” But then I realized, that for us, here, capital gains are even realized on our primary residences, but only beyond a certain threshold.

[Siam_Sam]

@Dead_Cat

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”.

Oddly, white elephants aren’t really white. For example, looking it up, I see of the four presently kept by the Burmese rulers, “one is grey and the other three are pinkish, but all are officially white.” In Thailand at least, while they must at least be rather light skinned, there are a variety of characteristics that are looked for, such as eye color and the shape of the tail. The king hs 10 now.

As for the OP, I vote for just selling the house if you can’t afford to keep it up. You’ll get something out of it after taxes.

[Nametag]

@Nametag

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.

@Dewey_Finn

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.

@gazpacho

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.

As implied by gazpacho’s reply, the price paid for the ticket is not a price paid for a house. When receiving real property as a gift (the most analogous situation), the cost basis is either the FMV of the property, or the donor’s adjusted cost basis – the higher of the two when figuring a gain, the lower of the two when figuring a loss.

[elbows]

Where I live, the similar, hospital lottery, which operates precisely as you have described, except;

The big prize house includes, all the funishings, with taxes, yard service, and groceries, all covered for a year!

Now that’s a better deal!

[Annie-Xmas]

[quote=“Chronos, post:2, topic:568849”]

Property taxes are usually, what, around 1%?

[QUOTE]

Depends where you live. In these parts (Bergen County NJ), it’s more like 4% - 7%.

[Mama_Zappa]

@Icarus

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…

You can take out a mortgage on the place to pay the taxes. Could you pay the mortgage on 550,000?

Or, you sell the place for whatever you can get for it. Presumably that’s the fair market value (and that’s what you have to record as income). I think houses sold at raffle like this are typically places that the owners have had trouble selling. So the “fair market value” they claim might well NOT be what the house would really sell for.

So, the place is touted as worth 2.2 million, you were able to sell it for 1.75 million; I think (but am not sure) that you can argue with the IRS that the lottery folks said 2.2, you can prove it’s really 1.75. A tax professional could advise on that. But for now, let’s assume you have to pay taxes on the full 2.2 million.

So - you’ve sold the place for 1.75 million. So now you’ve got 1.75 million in hand. Use some of that to pay the taxes. Subtract 550,000 from 1,750,000 and you’ve got 1.2 million left.

[Mama_Zappa]

@gazpacho

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.

Except - unless you can make the case that the house is solely an investment, capital loss doesn’t apply to houses. You might try, especially if you never live in the house, but I would talk to a very knowledgeable tax professional.

[Nametag]

@Mama_Zappa

Except - unless you can make the case that the house is solely an investment, capital loss doesn’t apply to houses. You might try, especially if you never live in the house, but I would talk to a very knowledgeable tax professional.

This is not exactly right. The sale of any capital asset held “for personal use only” cannot be reported as a loss; if you receive a house in a lottery and do not live in it or use it for vacations or something like that, then it’s not personal use, and I can’t imagine it being treated as anything but investment property. (If you rent it out, or use it for other business purposes, it’s not a capital asset, and it’s handled very differently) The very act of entering the lottery, combined with maintaining a domicile elsewhere, and selling the property without occupying it, creates (in my mind, anyway) a sufficient presumption of investment.

This doesn’t exactly contradict what you said, but I felt the emphasis was…flawed.

[Cayuga]

@Mama_Zappa

I think (but am not sure) that you can argue with the IRS that the lottery folks said 2.2, you can prove it’s really 1.75.

You’re absolutely right, Mama.

I was on a game show a few years back. I won a few prizes, and the production company gave me a sheet of paper that listed the manufacturer’s (I think) estimated value of each item. I found two of the items advertised for much lower prices in the paper, so I cut out the ads, attached them to my tax return, and listed the advertised prices under my income.

[dhkendall]

@dhkendall

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 I love expensive houses!) I can’t find the exact wording on the contest website … )

Sorry for reviving the thread, but I think it can be excused if I point out that I’m doing so with new information.

The hospital’s home lottery has started up anew, with a different home, but pretty much the same FAQ wording. You can find it here