no third solution » Legalese, Michigan, Property Rights » Can I Raffle My House?
Can I Raffle My House?
I’ve heard about people trying to raffle their houses, and a Google search returns a number of relevant stories, including this story from Michigan.
The idea is that the homeowner has been unable to sell the property after many, many months on the market. The homeowner then has a novel idea: offer the house as the prize for a lottery/raffle drawing. In most stories, tickets for the raffle sell for $100. These are not especially bad odds, compared to many of the lottery scams offered by your State lottery. Your odds of winning a $250k house are about 1 in 2500. Not too shabby.
Has anyone successfully bought (or sold) a house this way?
This is a very interesting scenario, from a Real Estate perspective.
Do the potential “buyers” understand the tax implications of winning a $250K house? They have to pay a significant tax on their “winnings”. Since this is a lottery the winner probably has to pay 30-40% taxes. A “gift of equity” is usually reserved for family members, and also limited (I think) in amount. I suppose the sellers could Quit Claim to the Winner, but that probably wouldn’t be satisfactory to mortgage the property in order to pay the tax bill due.
Is this legal? Of course, it should be, but it’s probably not. I can’t operate my own lottery. Tomorrow there will probably be a news story that he was arrested for fraud or some other made-up charges..
Written by David Z
A lifelong Michigan resident, David holds a Bachelor's Degree from Central Michigan University and a Master of Arts Degree in Economics from Walsh College of Business & Accounting. Among other things, he is a market researcher, an avid snowboarder, beer-snob, former collegiate rugby player, bacon enthusiast and dog lover.
Filed under: Legalese, Michigan, Property Rights
You know, this brings up an interesting question… why CAN’T I run my own lottery? Lottery’s have been, historically, exempt from gambling laws (at least every state has a lottery just about, even the ones with harsh laws against gambling).
The answer is of course competition.. the State hates it when people compete with it (after all, they’d rather be sucking down our dollars they haven’t stolen already, rather than someone else getting that piece of the pie).
But on a more general level, I wonder where the State draws the line? Schools use raffles for fundraisers all the time, giving away even cars sometimes… but if a private citizen did it, it would somehow be fraud?
The State’s illogic continues to impress me with it’s depths.
I heard on today’s TV news that the owner had been instructed that what he was doing violated state gambling laws. He was also told that to have each interested party write and essay to go along with their $100 would make the matter legal as the winner would be the personw ith the best essay.
One thing’s for sure: I don’t want to live in a society where if I raffle my house men with guns with chase after someone — anyone — in pursuit of tribute.
Home Raffles are totally legal in just about half of the states in the US. To be legal a homeowner needs to partner up with a non-profit. The non-profit actually conducts the home raffle, Not The Homeowner, this is where most people get it confused.
Here is a link to a FAQ document that may explain some things from a homeowner perspective.
http://www.usahomeraffle.com/faq.asp?faqID=143
There is still a tax implication for the ‘buyer’ He could deduct the $100 from his taxes, but he would have to pay taxes on the fair market value of the house minus the $100 bucks. I think the effective tax rate at that high of “income” is somewhere around 36%-40%. I can not remember off the top of my head.
All these people getting “free” houses on Extreme Home Makeover have to pay taxes on these things. Remember the Oprah car debaucle?
At the same time if the charity hands you the money that exceeds the original purchase price of your home, you have to recognize that as Capital gains, which gets taxed at 25%; however, you can avoid getting taxed on capital gains by purchasing another house or land within a certain amount of time.
The only winners would by the charity and the homeowner. The winner of the home would be f’ed. If I had sometime, I could figure out the cost difference between winning the house or buying it and paying off a mortgage over 30 years, but I don’t have the time atm. And the answer is not as obvious as it looks. You have to take into consideration Oppurtunity costs, time value of money, interest, etc….
My overall conclusion is, even if the raffle could happen, most likely no one who would do it could even afford the tax implications and the transfer of deed would never take place.
I’m doing it now in So Jersey, but there’s a twist which I believe effectively avoids gambling & the tax burden for the winner. Visit my website for the full story.(http://www.ownahomefor100.com). This is really a great house & as you know participation is key in these events. Check it out, I’d like your feed back
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