Ever watch those reality TV shows and wonder how the winners pay their taxes? You’ve probably heard about Richard Hatch, the “Survivor” winner who wound up going to jail for not paying taxes on his winnings from that show. And what about the “Extreme Makeover Home Edition” people? They basically live in shacks that get remade into mansions. Those people are poor and they’re not getting cash money, so how do they pay the taxes on their new homes? I’ve got some answers for you.
Generally, if you win money or prizes on a game show, the money or the cash value of the prize is taxable to you on your personal income tax return. That’s why if you’re ever on a game show and your choice is the prize or the cash, my advice is to take the cash so that you can pay the tax.
Extreme Makeover Home Edition is a little different. The winners usually don’t get cash and the value of the makeover can be worth over a million dollars, so how do those people deal with the taxes? The answer: they don’t. You see, according to IRS regulations, if a tenant makes improvements to a landlord’s property, the landlord is not required to pay tax on the property improvement made by the tenant. When Extreme Makeover comes knocking at the door, they sign a lease that says they’re renting the property from the homeowner. That makes those crazy improvements they do tax free!
There’s also a whole lot of things that go on during that week that you don’t get to see. For example: when you watch the show, you see them putting up one home. In reality, they’re shooting two shows at once and Ty Pennington and the other stars are racing back and forth between two home building sites. Putting up one home in a week would make me dizzy, I can’t imagine working on two at a time.
Another issue that they have to settle before a family is selected is the mortgage. ABC actually works with the mortgage holders of the properties to make sure they won’t foreclose on the winners after the project is done. Sometimes on the show you’ll see a scene where the mortgage is forgiven by the bank. That too would create a tax situation for the winner, but once again, Extreme Home Makeover has done their tax homework. When a mortgage debt is for the purchase or improvement of a taxpayer’s main home, then when the debt is forgiven. That debt forgiveness is excluded from the income at tax time, so the Extreme Makeover winners don’t pay tax on their debt forgiveness either!
Another big win that you see a lot on Extreme Makeover is some local college will grant scholarships to the kids. Once again, college scholarships aren’t taxable, ka-ching! I love this show.
Now sometimes you’ll see a family get a car or something else—that is still taxable and when that happens, the winner will get a 1099MISC for the value of the prize.
When it comes to the best bang for the buck, Extreme Makeover Home Edition gets the prize for the best tax-advantaged reality show on TV.