My friend that won the house ran into one problem with her great score!
Big time taxes
Taxes!!!
The $200,000 that my friend won in the post “My friend won a house“, had the taxman at her door wanting his fair share!
Luckily my friend “Sis” wasn’t making as much money as she does now. But still the capital gains on $200,000 is quite substantial. I’m not privy to the actual tax amount she paid, but from what I read it would have been taxed as if it were regular federal income tax rate, and then the state tax rates too… So I’m sure it turned out to be a pretty penny, but not 50% like I’ve heard in the past.
(Check out this funny and informational post by www.bargaineering.com: “Prize Winnings Tax” )
So how did she pay for the winnings?
To start, she sold the new car that was part of the prize package (it was a hyundai). Next she sold some of the gift certificates to friends. She used some of the money that she had in savings, but I doubt that was enough either. I’m guessing that she probably borrowed the rest from her parents. I do know that she was pretty stressed out coming up with the money for the taxes.
So I started wondering what would I do in her case?
- First, I’d have to liquidate all of my regular stock account holdings.
- then I’d have to take a $50,000 loan against my 401(k).
- I would expect that should do it, but if it didn’t, then I’d also take a home equity loan against the house I just won :(.
I guess in this case, every silver lining has it cloud. 😉
But hey, it’s still good!