Tuesday, June 16, 2009

Winning a Big Prize can Generate a Big Tax Bill

How to Get a $3 Million Mansion for Just $10 at CNBC.com report that Mike and Laura Brannan are selling 300,000 $10 raffle tickets for their $3 million home. Winning sounded like a great return on $10, until I figured out the tax consequences.

Based on the 2009 tax tables, a couple filing jointly would owe $1,020,362 of federal taxes on $3 million of taxable income. For those living in states with an income tax, between 4.35% (Michigan) to 10.55% (California) of the $3 million value, or $130,500 to $316,500, would need to be paid.

Also, the annual property taxes are $34,000 per year.

So a winning $10 raffle ticket could cost me $1 million+ dollars in the first year and $34,000 each subsequent year. Like most people, I don't have that much saved in our emergency funds to cover the tax costs. I won't be buying a ticket for this raffle.

For more on Ideas You Can Use, check back every Tuesday Wednesday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

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