Winning your dream home is a dream come true — until the tax bill arrives.
The latest lucky winner of cable network HGTV's Dream Home 2019 contest is Beverly Fulkerson, a former preschool teacher from Osgood, Indiana. Fulkerson recently won a $2.3 million package that includes a newly remodeled and fully furnished home in Whitefish, Montana, along with $250,000 in cash from Rocket Mortgage by Quicken Loans and a 2019 Honda Pilot Elite SUV.
Fulkerson's name was picked out of almost 135 million entries to land the 3,650-square-foot house located in a Rocky Mountain resort town that features skiing and a lake near Glacier National Park. The three-bedroom house, which HGTV describes as "mountain modern," includes a floor-to-ceiling windows and an outdoor patio with a fireplace and hot tub.
Source: HGTV, Robert Peterson/Rustic White Photography
All in all, it's a hefty prize package, but if Fulkerson is anything like most of the contest's previous winners, she might not be moving to Montana anytime soon. In fact, according to a 2018 Country Living report, as of last year, only six of the 21 previous winners of HGTV's Dream Home contest ended up living in their prize homes for more than a year. (2018's Dream Home winner took a lump cash option in lieu of the house.)
The reason? Taxes.
The estimated federal income tax bill on the $2.3 million prize package that Fulkerson won would be about $789,140, according to Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting.
And, that's not even including the additional state income taxes, whichWolters Kluwer senior state income tax writer and analyst Tim Bjurestimates would be a little more than $105,937 in Fulkerson's home state of Indiana. Fulkerson would also likely face local property taxes on her new Montana home of more than $12,600 annually, according to Wolters Kluwer senior state tax writer and analyst Bernita Ferdinand.
That's a total tax bill of more than $900,000, or nearly 40 percent of the total value of the prize package. And that is likely why so many of the Dream Home contest's previous winners have either sold their prize home or opted for the lump cash option in the first place.
Fulkerson has not publicly commented on whether or not she will ultimately keep the Montana home, and an HGTV spokesperson told CNBC Make It that Fulkerson has requested not to participate in media interviews.
If Fulkerson does choose the cash option from the contest, then her haul would be valued at just more than $1 million, including $750,000 in cash, along with the $250,000 from Rocket Mortgage and the Honda SUV.
The cash option still comes with a large federal and state income tax hit (well over $300,000 in total, according to the Wolters Kluwer analysts). But, it would be much easier to tackle that tax bill with cash winnings than it would be to pay nearly three times as much if Fulkerson keeps the house (the $250,000 from Rocket Mortgage would help offset the tax charges).
Source: HGTV, Robert Peterson/Rustic White Photography
HGTV launched its Dream Home contest in 1997, when the network gave away a mountain home in Jackson Hole, Wyoming. Since then, some winners have opted for the cash option while others have visited their prize home a few times before selling it to cover their tax bills, according to Country Living, which also notes that some winners have even taken out mortgages to cover their tax bills and rented out their prize homes.
Whether the winner keeps the home, sells it or takes the cash, it's a "life-changing experience," a spokeswoman for HGTV told CNBC Make It in a statement.
Of course, pretty much all big prize winners are going to face a significant tax bill. For instance, as CNBC previously reported, the winner of Wednesday's $768.4 million Powerball drawing is likely to pay more than $200 million back to the government in the form of federal and state income taxes.
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