Could HGTV Dream Home Taxes Spell the End of the Dream for Winners?

Could You Afford to Pay the Taxes on the HGTV Dream Home?

Photo of the back of the 2012 HGTV Dream Home.
The back of the 2012 HGTV Dream Home, including decks and hot tub. © 2011, Scripps Networks, LLC. All Rights Reserved.

The dream of winning an amazing house lovingly created by some of the most famous designers and renovators in the business has spurred hundreds of millions of entries into HGTV's Dream Home sweepstakes each year. However, the dream also has a drawback: winning such a huge prize comes with a huge tax hit.

The Trouble with Big Sweepstakes Wins: How to Pay the Taxes

In the United States, sweepstakes prizes are taxed just like any other kind of income.

Whether you make $30,000 working at your day job or you win a $30,000 vacation doesn't matter to the IRS, it's all treated as income.

This is fine if you happen to win cash sweepstakes and can simply deduct the taxes from your winnings; but with vacations and other prizes that are difficult to liquidate, you have to find the money to pay the taxes.

The HGTV Dream Home Sweepstakes has an additional tax problem: not only are you hit with a heavy tax bill because the IRS treats you as if you had made an extra few million dollars of salary that year, but if you choose to keep the house, it comes with its own costs. For example, you will also be paying sizable property taxes every year, and just paying the utilities for such a huge house can cost thousands every month.

How Can You Pay Taxes on the HGTV Dream Home?

One idea about handling the sweepstakes taxes on the HGTV Dream Home Giveaway is to use the beautiful home to generate the money to pay for itself.

This was Don and Shelly Cruz's plan when they won the 2005 Dream Home in Tyler, Texas.

The Tyler Dream Home had several buildings on its property including a second stand-alone house on the shores of Lake Tyler. The Cruz family intended to sell the lake cottage or to turn the house into a Bed and Breakfast to generate income.

But zoning regulations prevented either idea from working out, and the Cruzes ended up having to put the Dream Home on the market.

This is why every Dream Home winner has done the same thing with their windfall: they sold it. 

Is the Dream Home Sweepstakes Worth Entering If You Have to Sell the House?

On the surface, it seems disappointing to win an amazing home and then have to sell it again. However, winning is an incredible, once-in-a-lifetime experience. HGTV goes to great lengths to surprise the lucky winners, they treat them like royalty when they are flown out to see the home, they can vacation in the house and enjoy all of its amenities, and they can often take the designer furnishings and extras like the car that is also awarded in the Dream Home Sweepstakes for their own.

When Milton O'Bryant won the 2002 Dream Home he said, "It is almost magical the first time you get to tour the house. When we arrived in Annapolis we were greeted by a wonderful staff that took care of all of our needs. You will eat the finest foods, visit the area's best attractions, and receive numerous gifts and keepsakes."

Furthermore, the HGTV Dream Home is a prestigious property that many people would love to own, meaning that it usually sells for millions of dollars.

Even after paying ​the taxes, smart winners have enough cash left over to live their dream, including renovating their own home or buying a new one.

In their article Is It Really a Dream Come True?, MSNBC quotes HGTV spokeswoman Emily Yarborough as saying: "Our vision of the dream is that it enables you to do what you want to do."

Enter the Dream Home Sweepstakes – But Don't Fixate on the House

If you won a giveaway where the prize was a million dollars cash, a vacation, appearances on television shows like Oprah, and a brand new car, you'd consider yourself very lucky indeed. However, some people call the HGTV Dream Home Sweepstakes a nightmare because of the tax burden. The important thing about this sweepstakes is not to get fixated on keeping the home, but rather to enjoy the experience and the money and other great prizes that you will receive.

As Milton O'Bryant said: "I would have loved to keep it, but I was also terribly proud to sell it. It is a strange emotion... I am proud of this sweepstakes, and I want everyone to enter. It is a chance of a lifetime that everyone should risk. What happens after you win will be what you decide is best."

What to Do if You Win the HGTV Dream Home Sweepstakes

The very first thing that you should do if you win the Dream Home Sweepstakes, or any large sweepstakes prize, is to hire an experienced accountant to help create a plan that will allow you to handle the taxes.

Read about the Experiences of a Real HGTV Dream Home Winner

For more information on this subject, read my interview with Don Cruz, the winner of the 2005 HGTV Dream Home in Tyler, Texas. Find out whether winning the Dream Home is worthwhile from someone who is in the best position to know.