The financial burdens of house raffles

February 3, 2009 5:56:37 PM PST
A Marin house raffle is coming to an end this week -- Friday is the last day you can buy a ticket. What would you actually receive if you won?

The house is valued at $2 million, not a bad win for the price of a $150 raffle ticket. But this is America, there are tax implications, so if you won what would you actually receive?

The house is a totally remodeled and expanded 1910 Craftsman house. It has a beautiful pool, a designer kitchen and million dollar views -- actually $2 million in views because that is the value placed on this house.

"Last year, we sold 34,000 tickets and this we should be pretty much the same. Compare that to the lottery and you have pretty good odds," said Russ Hamel from County Action Marin.

"So it's not like getting hit by lightening, it is more like getting struck by," asked ABC7's Michael Finney.

"A bus. Yes, yes," said Hamel.

Hamel says for $150, you get a chance to win the 4,400-square foot home. The agency gets about $2 million to keep its programs going.

Community Action Marin is a non-profit and it serves 4,000 Marin kids, elderly and low income residents each day.

"We've seen an increase in the demand for services of about 30 percent, but at the same time we see the availability of funds going way down, so this is very important to the operation," said Hamel.

If you win, you get the house, but before taking posession, by law, taxes must be paid.

"There is withholdings. The payor may have to withhold up to 25 percent of the winnings at the time the property is transferred," said Mary Canning from Golden Gate University.

Canning is the Dean of the Golden Gate University School of Taxation and School of Accounting. She says that 25 percent is just the beginning -- the winner will have to pay tax on the house as if it were income.

"Yes because you haven't held it for over a year so it would be ordinary income it is effectively a form of compensation," said Canning.

"And so, you would be at the top tax bracket," said Finney.

"Yes, yes," said Canning.

The highest federal tax rate is 35 percent, so that's approximately $700,000. The state's top bracket is 9.3 percent -- we'll round off and call it $180,000 for a total of $880,000.

You could refinance that for about seven percent and have a monthly mortgage payment of $5,854.66.

Probably not a good idea for most of us, so there is a second option. Rather than take this beautiful home, community action Marin will cut you a check for $1.6 million. Minus the taxes $704,000 and you are looking at pocketing a cool, $896,000.

If you kept the house, property taxes would run you about $25,000 a year.

Related links:

  • Community Action Marin
  • Dream House Raffle