Extreme Makeover: Home Edition Lessons, Pay Taxes On Your Winnings!

This is no free lunch, but wouldn’t you still prefer having a taste?

Wouldn’t you like to be a chosen homeowner for the ABC show “Extreme Makeover: Home Edition”, when a team of top builders will alight upon you, change your life in a few short days and turn your environment into a grand statement of luxury? Oh yeah, if only to be blessed by such fortune. There don’t seem to be any eligibility rules for participants in the show, except perhaps that you have a down-on-your-luck story that begs to be transformed into a Cinderella tale with a happy ending, replete with that unimaginable, prized state-of-the-art home.

But before you decide to apply as a participant in this show, you may want to step back and think about how your life could change if you ever do get selected for an episode. It’s one of those things where the saying “be careful what you wish for” can actually apply. This is because many folks who thought they were going to get all their life problems answered by winning a spot at Extreme Makeover have actually met with other headaches. But before we go into that, let’s check out some of the sweet rewards you can get out of becoming a “winner” in this show.

Extreme Makeover Before & After Home Pictures

BEFORE AFTER

Paying Taxes On Extreme Makeover Home Edition Improvements

But as it goes, after such a house overhaul, you’re probably going to face quite a hike in taxes. Let’s see a few cases in point.

Case #1

The new 4,600-square-foot house, valued by the city of Encinitas at $410,474, already is on the radar screen of County Assessor Gregory Smith. Before work started, the 31-year-old house measured 1,212 square feet on a 7,744-square-foot lot.

Smith said he expects to send Brian Wofford (the homeowner) a supplemental property assessment statement late this year that will likely double the present property tax bill of $2,698.

Case #2

Last year, the Jackson County Assessment Department used an obscure county ordinance and a new appraisal to sucker-punch firefighter Stephen Johnson with a property tax bill more than three times what he paid the previous year. It began when the county issued Johnson a $3,891 tax bill. The county claimed his new six-bedroom home was worth $348,089 — in a neighborhood where most houses barely crack six figures.

And finally Case #3

Before the makeover, a small split-level with faulty plumbing and steep stairways was home to the Llanes family. It was assessed at $222,200, and they were paying about $6,110 a year in taxes, according to Bergenfield Tax Assessor Art Carlson. But the value of their property has more than doubled: Carlson estimates it’s worth about $497,000, putting the Llaneses’ tax bill in the new year somewhere around $14,550.

Amazingly, there are more such cases of this scenario popping up now and again. So what’s the show got to say about this? There are actually some things done to ensure that participants and guests in the show are taken care of. There are supposedly some preparations made and financial cushions that are afforded the players to help mitigate the sudden adjustments to their economic status and money obligations. How do they hedge any tax problems that do come up?

What Financial Preparations Are Afforded The Players?

Players are granted lump sums to cover tax liabilities, such as in the case of Rocket Science Laboratories, which produces Fox’s “Renovate My Family.” But such tax payments are considered income so adjustments are made to ensure that ultimately, NO tax is owed. You win a ranch and you get additional bucks to cover the taxes: now that is SWEET!

Renovations to an existing house are considered tax exempt by allowing the said property to be leased or rented to the production company for 2 weeks while the work is happening. “Extreme Makeover” employs this strategy to avoid incurring taxes for the work they do. There’s actually a tax provision that allows homes to be rented for less than 15 days a year with no tax consequences, even while improvements are made by the tenant for that time period. The voluntary improvements should be considered of no value to the owner — obviously that’s something the owners here would claim.

The players are encouraged or advised to refinance their newly refurbished house, and with the increase in equity, they will be able to pay off the additional property tax generated.

Even with all the hand holding these shows demonstrate and offer their players, the shows have great intentions but discount the long term financial impact these changes will bring some of the families. According to a Newsweek report, a few of these television show winners become disgruntled with their winnings. Could these prizes be more trouble than they are worth, if you are not financially prepared to receive such material gifts? Beyond taxes, there are maintenance, repair and operational costs that go into running and owning a house. A bigger house can be quite a headache for residents who aren’t prepared to handle the responsibility of such ownership.

The one big lesson that I take from this is how important it is to have a long term plan when faced with possible financial changes. Even windfalls and good fortune can have consequences that need to be prepared for and reasonably addressed, hopefully prior to their actual occurrence.

On a lighter note, I’ll add one more piece of silly advice: if you’re going to try out for a game show, why not audition instead for those that offer cash prizes, so that there won’t be sticky financial issues to face, like periodic taxes and the challenge of physically maintaining such illiquid assets. Just don’t be like Richard Hatch, the Survivor reality show contestant and winner of Season 1, who thought he could get away with not paying up half of the booty (to the government). He ended up in the slammer.

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