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!
She wasn’t able to take out a loan against the value of the home? Any idea how long she had to pay the taxes after she won the house?
Hello Ryan and welcome to my site!
I don’t think she did that (although that’s what I would have done).
As for how long she had to pay the taxes after she won the house, I’m not sure. The next time I see her (which isn’t often) I’ll ask her.
I do remember her being stress out about the taxes. But honestly, I wasn’t thinking they would be as high as they were.
I think I would have ran out and got an appraisal on the house for tax purposes. It may have saved her a ton. Then I would have taken out a HELOC to pay what needed to be paid. HELOC’s are cheep money right now, yea I know for how long?
@Daddy Paul
Good tips! Yeah, that get an appraisal sounds like a great idea!
A HELOC (Home Equity Line of Credit) is what I would personally have done too.
It’s still a great position to be in Taxes or no!!!
Some TV show has a house giveaway in progress now. My wife keeps saying she is going to win and we are moving. I keep saying, “no way”, we are selling the house and she thinks I am crazy. She is getting a link to this post in her email tonight!
LOL! My friend won her house from a radio station show. Surely, a TV Show would get many more participants! I still can’t believe she won it. I don’t think I personally know anyone else who has won such a big prize!
Yeah, those taxes caused some real grief in the short term… Some major stress, for my friend! Especially considering she just got out of college.
This was a good follow up post to your story. Of course, the taxes will always get you. I think I would have raided my savings and my parent, but since they don’t have any money then it would have been going online to prosper and borrowing it.
@Jane
Thanks! I’ve been hearing prosper.com all over, I’ll have to check it out sometime.
Pingback: MoneyReasons Weekly Cache 2010, Feb 14 | Money Reasons
Pingback: The Yakezie Challenge Carnival #8 – Tax Day Edition! | MyMoneyMinute.com