Taxes on Sweepstakes Winnings?
Tracey T asked:
OK - I know my chances of winning the HGTV Dream Home are virtually nil, but just in case…I like to be prepared. The prize of home, car, and furnishings is valued at $2.2 million. I assume if I win, the $2.2 million would be added to my current income for 2008, and I’d owe taxes on that sum. If I sell the home before the end of the year for something less than it’s estimated $2 million value (real estate is pretty slow these days) and got, say, $1.4 million, would the tax be based on the estimate that HGTV gave as to the value of the prize, or on the actual amount I realized? And would I owe twice … once on the prize, and once on the sale?
OK - I know my chances of winning the HGTV Dream Home are virtually nil, but just in case…I like to be prepared. The prize of home, car, and furnishings is valued at $2.2 million. I assume if I win, the $2.2 million would be added to my current income for 2008, and I’d owe taxes on that sum. If I sell the home before the end of the year for something less than it’s estimated $2 million value (real estate is pretty slow these days) and got, say, $1.4 million, would the tax be based on the estimate that HGTV gave as to the value of the prize, or on the actual amount I realized? And would I owe twice … once on the prize, and once on the sale?
Possibly Related Posts:
- by law when does an employer have to furnish an employee with a w 2?
- How do I get the 1st time home buyer tax credit now, if I have already filed 2008 return?
- How much taxes would need to be paid on a prize item worth more than 2 mil USD?
- Can I deduct expenses for my rental property?
- If you enter a raffle to win a luxury home, and win, How do you pay the income taxes?
You would owe tax on the fair market value of the prizes. The $2.2 Million is the value that HGTV has placed on it. The real value is what a willing buyer would pay, be that more or less. With a relatively short period between winning and selling, you would be safe using the sales price as the fair value.
You NEVER take the prize when it’s this large.
If you accept the property and then sell it before the end of the year, *you* would be the one arguing that this was one event, not two with HGTV and the IRS. If HGTV puts $2.2M on the 1099-Misc the IRS has zero incentive to let you off the hook. And if they don’t accept your argument that the prize is really worth $1.4M, you have a huge tax bill and no way to do an OIC. (After all, if you sell, you have enough money to pay the tax bill, just nothing left over.)
Here’s the problem The show would issue you a 1099-Misc showing $2.2M in prizes. You put this on your return in the year you get it and owe 40% in tax ($880,000).
When you sell, you put the sale on schedule D. Since this is your personal residence, any losses are NON-DEDUCTIBLE.
If you never live in the property and claim it was for investment, the loss is deductible, but then the schedule D rules kick in. If you have no gains, the IRS lets you take $3000 against other income per year (until you use it up or die). You won’t live another 266 years.