What are the tax implications of winning a dream home?

Question

If I sell it before moving in will there be a bigger tax hit than selling it as a primary domicile?

Answer 1

You tax is first on the ordinary gain of winning the house. This income tax is unavaidable (be sure and deduct any documented expenses you incurred in your pursuit of winning things). The next tax is selling it (if that's your plan). This is sales tax. Try to receive the dream home in a domicile that has no sales tax. Then try to sell it for as much as you can. That's all you can do.
If you keep it, then you'll get property tax. Aslo unavoidable.

If the taxes are why you wnat to sell it, consider mortgaging it a little to cover the taxes. Selling it is probably the worst thing to do with free real estate.

Answer 2

Yes - In order to be a primary residence, you must live in the home for two years. Only when the home is your principal residence may you claim the tax free benefits. Be aware though that even if you decide to claim this home as primary residence, the amount of tax free gain you are allowed is $250,000 for a single person or $500,000 for a married couple. This amount is determined by

Sale Price - Cost - Capital Improvements = Profit

Also, if you won the house in a contest, you might have to pay the state fees and taxes associated with the home and the company that gave you the home might in fact give you a 1099 which would have you claim the homes value as income.

Answer 3

Probably not. The tax on winning the home would be the same in either case, and be taxed as ordinary income the year you win it.

If you sell it for more than its fair market value when you win it, then you'd pay taxes on the appreciation if you never moved in. If you had lived in it for two years as your main home, you could probably exclude the gain on a sale from being taxed.

Answer 4

Doesn't matter. It's fully taxable as ordinary income. The value as determined by the contest's sponsor is what you'll pay income tax on.

If or when you sell it, your cost basis would be the value that you paid the tax on. You'd have a capital gains tax situation when you sold it if you didn't qualify for the exclusion. If you sold it for less than you paid the tax on, the loss would not be deductible.

Answer 5

Either way, you pay tax on it (the value of the home the day you win it) as income. That becomes the basis of the home's value. If you sell it before moving in, you would pay capital gains tax only on the amount of profit you make by selling it. If you live in it for at least two years then sell it, you get to exclude $250K ($500K if married filing jointly) of the profit before paying capital gains tax.

Answer 6

Sell it or not, if you win it you owe tax on the value.
If you sell it for more than that value, you owe tax on the gain unless you occupy it for two years as your main home.

Answer 7

You got a dilemma. You can only claim the interest paid for the year on your primary residence. Now, since you have not paid any interest on the 'dream home' you may have to claim it's value as income, and pay tax on that.

I'd take a loan against the house to pay the tax, rent it and apply the rent to the loan. After all you are only going to be taking out the loan on the taxed amount to cover the tax debt.

And, the house is an appreciating asset.

Answer 8

Check with a certified tax consultant with a CPA