Does any one know how the taxation on winning a "dream home" in a charity raffle is paid?

Question

My city is currently selling rafle tickets for $100 to win a $500K dream home. The house is being donated by the builder, and all the ticket money is going to charity. I was just wondering how the prize tax on such a thing is handled. Is the winner suposed to pay income tax on the $500K value of the home?

The charity specifically states that the ticket price is not a tax deductable charity contribute. Why exactly I don't know.

Answer 1

Yes, the winner will pay tax on the full value of the home. Depending upon your filing status and other income, the Federal tax could be as high as $175,000.00. Most folks who win something like that have to sell it to pay the taxes.

Answer 2

Yes, the tax would be on the value of the home - which could be less than 500K. The winner should have the home appraised - the real market value could be less and there is case law that would allow the lower market value to be used.

Either way the tax will not be minimal. However, you don't always have to sell the property to pay the taxes (although the sales price would give you good number for a lower value for tax purposes if it sold for less than 500K). You could get a mortgage to cover the cost of the taxes, but if you can't afford the mortgage payment then you would have to sell.

I wish I could own a 500K house for less than 200K.

Answer 3

Close - they'd pay tax on the $500K prize, minus the $100 they paid for the ticket. And you can't deduct the price of the ticket as a charitable contribution whether you win or not.

Answer 4

I'm not sure I'd want to risk being auctioned off -- the embarrassment of getting a top bid of less than a BA would be too much to bear. Fortunately, I have a buttload of otherwise useless points, so I maybe I could buy myself a small harem.