Out of house and hope? Man wins Tyler mansion, tax bills that go along with it

Dallas Morning News ^ | June 23, 2005 | JESSICA LEEDER

[Cincinatus' Wife]

TYLER – Don Cruz moved to East Texas thinking he'd be living in a dream – a $1.5 million lakefront sanctuary he won in a Home and Garden Television "Dream Home" sweepstakes.

But the massive tax bill delivered with his winnings has blemished his utopia.

Mr. Cruz, 40, moved his family into the 5,000-square-foot Lake Tyler residence last month with the hope that he could raise the money by renting out parts of the property, opening a bed and breakfast, and charging for public tours.

But a city ordinance prohibiting commercial use of the land – and the Tyler City Council's unanimous decision Wednesday not to change that ordinance – have foiled his plans.

Now Mr. Cruz and his wife, Shelly, face a quandary: Come up with the $631,000 they owe in federal taxes by April, plus an estimated $32,300 in property taxes owed to Smith County and the Arp Independent School District, or sell the house.

....But the bills that accompany such windfalls often catch winners by surprise and catapult them into a tax nightmare.

"We're going to try everything we can to stay," Mr. Cruz said. "God gave us this house. It's not for sale."

Mr. Cruz appeared before the council looking nervous and wearing the only suit he owns.

[Cincinatus' Wife]

Didn't the prize include $250,000 from a mortage company?

Don Cruz is happy calling East Texas and the HGTV mansion home. Although he's struggling to come up with the hundreds of thousands of dollars he owes in property taxes, he says he has no plans to sell his prize.

RICHARD MICHAEL PRUITT / DMN Tyler City Council members on Wednesday rejected Don Cruz's request to allow him to rent out part of the "Dream Home."

***Here's how home makeover and giveaway shows help winners tackle taxes:

•ABC's Extreme Makeover: Home Edition subleases contestants' property for up to two weeks while improvements are under way, capitalizing on a provision in the tax code that releases homeowners from paying tax on improvements made while the property is being leased.

•Producers of Fox's Renovate My Family give homeowners a check to cover taxes, spokesman Matt Laviano said.

•HGTV producers advise winners to consult lawyers and financial planners. "We're not in the business of advising them financially," spokeswoman Emily Yarborough said.

As for the Internal Revenue Service:

•If you win the home of your dreams – or the car of your dreams, or any other big, heavenly prize – you might as well have just gotten a huge raise. Prizes and awards are taxable as ordinary income even if they're not liquid, said Martin Nissenbaum, author of the Ernst and Young Tax Guide and national director of personal income tax planning.

The best advice for sweepstake addicts:

•Be wary of what you win.

•If your loot includes a home worth $1 million or more, you'll owe a minimum of $350,000, said Shawn Novak, a federal tax specialist at Boise State University. ***

SOURCE: Dallas Morning News research

[sandbar]

Awwww, poor guy. Maybe the government will feel so sorry for him they'll let him not pay taxes.

Jeez.

[alnick]

A third of the value as income tax? Ouch.

I've entered that sweepstakes, and would love to win. I would never plan to actually live in the house. I'd just sell it, and pocket what's left over after paying the income tax, and be grateful for the extra $$$.

[madprof98]

. . . and be grateful for the extra $$$.

For many people in America, and especially among certain groups of people, being "grateful" is quite unthinkable. What would such a feeling entail?

[70times7]

My kids sometimes ask me questions like,"would you take a corvette if someone gave it to you?". My reply,"sure I would! I would love it if someone gave me a car like that... and it would be in the the paper for sale the next day. I would use that money to but a more modest transporation, and use what is left over for something useful."

Same goes here.

[Carolinamom]

FYI........HGTV fans!

[alnick]

I won a necklace valued at $11,000 once. I was advised to immediately run a classified ad offering to sell it, even though it was unlikely a sale would actually result from the ad. The point was to be able to prove to the IRS intent to sell. This allowed me to wait until the sale was actually made, at which point I could declare as income the sale price, not the market value of the necklace.

A car or a house is a bit different because they can be sold at much closer to market value than jewelry, though I would still immediately have a record of placing the item for sale. Jewelry isn't worth nearly what it's appraised for, as far as selling it.

[FiddlePig]

God gives... HGTV gives... but the government ALWAYS ALWAYS takes away!!!

[poobear]

Can he spell M O R T G A G E? Seems to me a lender would be more than happy to lend 1/3 of a homes value. Lots of equity there.

[Cincinatus' Wife]

I think a problem would be a JOB to pay a mortgage.

He's from Illinois and on disability.

They won't let him do a bed and breakfast.

He just needs to sell it and move on.

[poobear]

Curious, if he sells the house, pays the back taxes, will he still pay taxes on the difference as income? Double whammy? No tax accountant here.

[MizSterious]

Idiot. I enter a lot of sweepstakes--and win my share--and one of the cardinal rules is, don't enter a sweeps if the main prize is going to cost more in taxes than you can afford. Most people winning houses (and sometimes cars, etc.) will sell the house, pay off the taxes, and there should be enough left over to buy another house, or at least take a nice vacation. :)

[Panzerfaust]

A mortgage for one-third the value of the home would be $500K. This guy can't make the nut on a 500K loan, much less the $32K per year property tax bill.

He'll end up losing it to the tax man, instead of selling it and getting out the equity.

[Panzerfaust]

I think if you sell a house (a house that is your primary residence) before two years of ownership, you have to pay gains tax, unless you can show you had to move to accept a job in a new location. This guy needs a good tax advisor.

[MizSterious]

I don't know about the HGTV sweepstakes, but some sweeps will offer you cash instead of the prize--although it's usually less than the value of the prize (sometimes a lot less).

[poobear]

"This guy needs a good tax advisor."

Agree. Hopefully one who won't soak him for the last dime he gets out of the whole ordeal.

[I'm ALL Right!]

Exactly. Sell it immediately, pay the taxes, invest the profit....smile. That's my plan for when I win that dream house.

[kittymyrib]

Uh...God didn't give you the house, Mr. Cruz. HGTV did, and you owe a ton of taxes. Better call Century 21 today.

[cyborg]

I love the government. People still believe there's a thing called property rights in this country *lol*

[stevio]

Being grateful for the extra money is one thing. The government, with no effort in the process, takes 1/3 - 1/2 of the winnings from these contests. Who's the real winner?