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The 2009 HGTV Dream Home Sweepstakes started yesterday, and already people are starting to worry about whether paying the taxes on a $2 million prize makes it worthwhile entering.

If you take the basic rule of thumb that taxes are about 1/3 of the prize value (and of course, this varies from person to person - consult your tax adviser for your individual rates), the taxes on a $2 million prize come out to $666,667. The home and property alone are estimated to be worth $1.8 million.

This means that if the average person sells the house for just the estimated price, he or she ends up with $1.2 million cash PLUS $200,000 worth of furnishings, a $3,000 Doggie Dream Home, and a new car worth around $50,000.

And that's not even considering that the prestige of the Dream Home makes this a hot property to buy, which could push up the prices even higher. Or the other bonuses, like staying in the Dream Home until it's sold, free trips to visit the home courtesy of HGTV, and more.

Does the Dream Home still sound like a bad idea?

For more information, see Could Taxes Mean the End of the Dream for HGTV Dream Home Winners?

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Comments

January 2, 2009 at 10:32 am
(1) sally says:

Why do they make a prize so fantastic (and expensive) knowing that the average American could probably never afford the huge taxes. I think it would be more realistic to spend all the money on making 2-4 smaller “dream houses” that the winning contestants could actually pay taxes on and therefore really enjoy and actually move into!

January 2, 2009 at 10:37 am
(2) Contests says:

If you win the Dream Home and sell it, you could easily buy 2-4 smaller homes for yourself with the cash you’d come out with! :D

Personally, I’d much rather end up with over a million dollars free and clear than to have a house I could move into, but which I’d have to take out a mortgage on to pay the taxes.

Scripps Network does give away smaller houses, though, like the Blog Cabin which will be coming up later in the year. The smaller prizes don’t seem to generate nearly the excitement of the Dream Home, though, even though the taxes are far more affordable.

January 2, 2009 at 10:47 am
(3) SALLY says:

Have any of the previous dream home winners actually ever kept the house and moved in??

January 2, 2009 at 10:49 am
(4) sandy says:

It’s not just the Federal taxes, you have to pay to insure the property immediately. Plus there are the closing costs (the rules are rather unclear about this one), real estate taxes, utility and maintenance bills. It’s the rare person that has money “sitting around” for all of the expenses you’ll encounter before even being about to sell the place. I agree with the poster above, the “Dream House” is not designed with HGTV’s average viewer in mind.

January 2, 2009 at 10:56 am
(5) Sally says:

Sorry, just read the other article. It’s a real shame that no-one yet has won the Dream House and actually been able to live there.

January 2, 2009 at 10:59 am
(6) Contests says:

Sally, one winner tried to keep the Dream Home. His name was Don Cruz, and he had a couple of different ideas for paying off the expenses that didn’t work out. He ended up in financial difficulty and needed to sell the home. But after selling, the likelihood was that he would still come out ahead. You can read more about him here: http://money.aol.com/cnnmoney/realestate/canvas3/_a/the-house-that-swallowed-don-and-shelly/20060627161909990001 and here: http://www.msnbc.msn.com/id/10654803/

January 2, 2009 at 11:05 am
(7) Contests says:

I did a little poking around, and I found this article: http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/011508dntexdreamhome.3d70d5.html which claims that the 2005 Dream Home sold in January of 2008 for $1.3 million.

If this section of the AOL article is correct:
“f he manages to sell for $2.5 million, he’ll net around $1.6 million after taxes and fees. That would provide enough money to support the family while Shelly goes back to school, with plenty left over for retirement.

The worst-case scenario is that the Dream Home sells for only $1 million, netting around $250,000 after repaying the loan.”

it would indicate that they ended up more than half a million ahead after paying their loan, and got to spend more than two years living in a gorgeous house. So while I think it’s a shame that they weren’t able to work out a way to keep the house, it still seems like the prize paid off for them in the end.

January 2, 2009 at 1:47 pm
(8) Todd H says:

I think the popularity of the whole Dream Home giveaway is what the point of giving away an over the top prize. It gets peoples fantasies and imaginations charged. They make a lot of money doing the whole thing and people get to fantacize about living in a place like that. The positive about the house is it should be easy to sell, even in this economy. The house becomes a celebrity. People want to own that house. Don’t expect to get market value in most cases. I think I remember reading one winner was able to line up a buyer before even taking possesion of the house. The point to win the house from HGTV’s perspective is to accomplish your dreams. They don’t expect anyone to keep the house. The winner can easily be left with enough money to persue their dreams. To answer the question, less than 5% of the country could afford to pay the taxes and the ongoing expenses to keep the house and many of them already have their dream home. So on a probably basis, there probably will never be anyone who wins the house that would keep it for very long.

January 2, 2009 at 1:48 pm
(9) sally says:

Thanks so much for the research and information thats awesome! :)

January 3, 2009 at 6:09 am
(10) pc says:

I agree with Todd about the concept of the Dream house, even if you end up selling everything, you’ll be left with the means to realize some of your dreams. And whoever buys the house will have a fancy, famous, professionally furnished house, so win-win!

As for being able to afford the taxes on a huge prize I just won, I wish I could have that kind of a problem ;)

January 3, 2009 at 6:48 am
(11) Contests says:

Haha, PC, I agree with you fully! That’s a challenge I’d definitely like to accept! :)

January 10, 2009 at 5:17 am
(12) Chi says:

Do you have to pay the taxes up front? :) I mean, if I have time to sell the house before I pay taxes on it, then it’s completely worth it! If I have to pay over six hundred thousand dollars immediately, then that would never happen lol :)

January 10, 2009 at 7:59 am
(13) Contests says:

Usually, you pay the taxes with your income taxes for the year in which you receive the prize. So this year’s Dream Home taxes would be due with the rest of your 2009 income taxes, in April of 2010.

I don’t know if there are any up-front taxes or costs you’d have to pay to take possession of the house, though.

January 6, 2010 at 6:12 pm
(14) Pam says:

This is EXACTLY what I e-mailed HGTV 2 days ago to find out!!!!! How cool that this answer was here and, yes, it helped me totally altho I already knew I would never be able to live in it (even tho it is my all-time favorite of their homes) but just finding this forum is SO neat!!!

January 7, 2010 at 11:09 am
(15) Sandra Grauschopf, Guide to Contests says:

Thank you, Pam, and welcome! This year’s Dream Home will probably be a little more affordable for the winner, because they’re including a half a million dollars in cash, which the winner could put toward the taxes, if he or she wants to. For more information, see Good News – This Year’s HGTV Dream Home Sweepstakes Includes Cash for Taxes. Good luck winning that home! :)

January 21, 2010 at 7:06 pm
(16) Joy says:

I really enjoyed reading the interview with Mr. Cruz who won the Texas home. I say go for it – enjoy the ride. Even if you sell the home right away you will still be ahead, and the whole “ride” sounds like a blast. Nice break from the monotony of every day – why would you not do it?

January 21, 2010 at 7:18 pm
(17) Sandra Grauschopf, Guide to Contests says:

I’m totally with you, Joy, I’d love the experience, even if I couldn’t keep the house :)

January 21, 2010 at 11:33 pm
(18) Jason S. says:

I don’t know what the problem is, doesn’t the prize come with 500,000 Dollars Cash this year? If you moved in you wouldn’t have to worry about your rent or mortgage anymore so all money you would have paid toward rent/mortgage can go toward paying any taxes left over that the half a million didn’t cover.

January 25, 2010 at 5:29 pm
(19) Pete says:

What most people dont understand is that a 1099 form will be issued to you and the IRS. In addition a full year of school,city/town taxes will have to be paid upfront and as well as a full yr of Hazard Insurance which can be a hefty sum before you can close which can average as much as 5-6% of the total value. The average person does not have this discretionary income.

March 28, 2010 at 3:55 pm
(20) betty says:

why don’t they try asking people if they would like them to build a dream house on their own land , they could have a sweeps for their choice of dream home of their own, but on their own land , i think most people would like this idea more; i know i would enter every day, because a lot of people would love this idea, a lot of retired people want to downsize on their own land , thanks betty

August 22, 2010 at 5:53 pm
(21) john says:

Actually, the HGTV Dream Home is designed with exactly the average viewer in mind. The purpose is to generate buzz about HGTV, not to give the winner a home they can actually live in. What generates more buzz, giving away a few $300-400k homes that are nice but nothing more than the high end of ordinary homes, or giving away a $1.5mm home that is absolutely gorgeous and cutting edge in every way? The latter generates the buzz HGTV is looking for because that is was the AVERAGE viewer dreams about and wants to see someone win.

February 13, 2012 at 2:24 am
(22) michael says:

I have to wonder about the wisdom of the 2011 Dream Home, it’s built in a known flood plan. It’s hard to find but there is a little info claiming they raised the ground 4 feet under the house but said it was to improve the view. They don’t mention that the house is built in what used to be river bed at all. So the winner will need flood insurance right away too.

Still no hard feelings, if I won it I’d need to sell it fast, I don’t think I could even afford to come see it.

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