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Who pays taxes for Overhaulin'?


John Ranalletta

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John Ranalletta

The show is kinda boring but I watch when nothing else better is on. Many owners of the overhauled cars do not appear to be wealthy. The work on the cars, if done in a custom shop would probably approach $75-100k. An Edelbrock LS1 crate motor alone costs ca. $20k.

 

My question? Does IRS expect income tax on the gift?

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Firefight911

Yup. Co-worker of mine was on Backyard Crashers. All work was taxable and he had to pay.

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Glenn Reed

This Old House ran into that problem a while back. Once the IRS got involved, the game changed a little bit as I recall.

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Antimatter

It's not uncommon for the contestants on game shows to decline their winnings, when faced with taxes on them. For shows like "The Price Is Right", it's a two-fer; entertainment AND they don't have to pay out to the winners. Jeopardy just has California taxes on the cash they pay out - it's up to the winners to figure out their federal taxes.

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Joe Frickin' Friday
It's not uncommon for the contestants on game shows to decline their winnings, when faced with taxes on them.

 

:eek: Wow. That seems awfully shortsighted. If you've won a collection of physical items, it seems like all you'd need to do is sell a few of them to genera the cash you need for the taxes. Even if you sell things at well below market value to assure a fast sale, that still lets you take your loot home from the show, which seems like a better deal than letting the whole pile slip away.

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Patallaire

It is income taxable, not capital gains, so in many cases, as an example if they won a car, it could put them in a much higher tax bracket. So, if a $75,000 car put you up into the 25% bracket plus state taxes, that could be $25,000 +/- due to the IRS. Many people don't have that sitting around, so the would be inclined to sell the car, pocket $50,000, and pay off credit card debt! Toy's as we all know, have a cost associated with them.

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Matts_12GS

Ok, so this makes me wonder about a similar, albeit slightly different bent.

 

I've gotten pretty fond of the show "Fixer Upper" wherein house is bought for some lower value, then gutted out and rebuild to the buyer's max budget, often twice the purchase price.

 

Example:

350K budget for a house

200K purchase price

!50K renovation budget

 

From some of these, there doesn't seem to be any kind of neighborhood comps that can now support a house in a $200K range neighborhood suddenly worth near $400K.

 

It seems to me that it would hurt the buyers if they tried to sell in less than 5 or 10 years.

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Antimatter
It's not uncommon for the contestants on game shows to decline their winnings, when faced with taxes on them.

 

:eek: Wow. That seems awfully shortsighted. If you've won a collection of physical items, it seems like all you'd need to do is sell a few of them to genera the cash you need for the taxes. Even if you sell things at well below market value to assure a fast sale, that still lets you take your loot home from the show, which seems like a better deal than letting the whole pile slip away.

 

Assuming you've got the money on hand to pay for it. I've heard the shows have an IRS agent back stage that requires you to fill out paperwork and informs you of what the payments will be. Lots of folks living paycheck to paycheck would never be able to afford the taxes, so they decline the prizes. TV is mostly illusion.

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Joe Frickin' Friday
Assuming you've got the money on hand to pay for it.

 

Well, no, it doesn't. As I was saying, it seems to me that all you'd need to do was sell a few of your prize items (or your singular prize item) in order to convert it to cash, allowing you to use a portion of that cash to pay the required taxes. Example, you could be flat-ass broke, and if you win a new car worth $25,000, you could sell it rather quickly for $20,000, set aside $5,000 (or whatever) to pay the required income taxes, and have $15,000 in cash left over.

 

Why is that not better than simply declining the winnings?

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Patallaire

In the car example that you framed, it clearly would not be better than declining the winnings. Some of the other shows where they give various prizes, they declare the value at pure retail, in most cases they would never sell for that, and they may not be worth the hassle to try to sell them, so it may be better to decline it or if there is a take the money option, take it and pay the taxes on that and enjoy the remainder.

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Patallaire

Example, you could be flat-ass broke, and if you win a new car worth $25,000, you could sell it rather quickly for $20,000, set aside $5,000 (or whatever) to pay the required income taxes, and have $15,000 in cash left over.

 

Actually if that moved the person up to 25% in California the taxes on the car would be $6250 federal, and $2500 State, so in your example they would need to set aside $8,750 and be left with $16,250. Not a bad days work for being lucky, all the stars would need to align and the taxes are due and must be set aside, they would not be automatically be withheld. That takes discipline to see that money in your account and know that it is not yours to enjoy.

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Dave McReynolds

The best evidence of what something is worth is what a willing buyer and willing seller pay in an arm's length transaction. That is better evidence than what a game show says something is worth. For example, if you won a car with a stated value by the game show of $25,000, never drove it, and sold it within a week or so for $20,000 to an unrelated party, then you would have to pay tax on $20,000, not $25,000. If the show sent you a 1099 for $25,000, you would report the entire $25,000, but on the next line of the tax return you would report a $5,000 deduction, and attach a statement outlining your evidence that the true value of the car was $20,000. This might be scary for some people, as the IRS might ask you to prove your value, but I have taken this approach in a number of cases where a client feels that a 1099 is incorrect, and we have always ultimately prevailed.

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Glenn Reed

Dave,

 

Thanks for the insight. Not that I ever foresee being on a gameshow or an Overhaulin' type show.

 

Glenn

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