March 2, 2010
Noe Valley Dreaming (And Raffle House Unveiled Tomorrow)
Last year the San Francisco Dream House Raffle to benefit Yerba Buena Center for the Arts offered a grand prize of a "$2.4 million San Francisco dream home or $1.8 million in cash," this year it’s a "$3 Million San Francisco ‘Dream House’ or $1.5 Million in Cash."
Last year the winner chose the cash. Note the change in spread(s).
And while we do know which house it is (and plugged-in people probably saw it coming), we’ll play along with the "closely guarded secret" and respect its grand unveiling tomorrow.
That being said, keep an eye out for "blind-folded" supervisors, supporters, and members of the press rolling into Noe Valley on a motorized cable car tomorrow afternoon.
UPDATE (3/3): Spoiler Alert: The 2010 "San Francisco Dream House" Is…
∙ 2010 San Francisco Dream House Raffle [sfraffle.com]
∙ Can’t Sell? Raffle! 1240 5th Avenue: The "San Francisco Dream House" [SocketSite]
∙ 1240 5th Avenue: Raffle Winner Chooses Reality Over The Dream [SocketSite]
First Published: March 2, 2010 2:00 PM
Comments from "Plugged In" Readers
Just out of curiosity, how do they assess taxes on a house you win in a raffle? If I win this $2.4 million house, can I use Prop 90 to transfer my taxes? My current house would sell for quite a bit less than that amount, which in ordinary circumstances would preclude Prop 90. But on the other hand, all I'd be paying for the house is the cost of the ticket.
Posted by: Bob in Noe at March 2, 2010 2:40 PM
Not sure of that Bob. I think it counts as a lottery - essentially gambling winnings. Taxes are based on the total amount, not the amount of the ticket purchased.
Posted by: Chris at March 2, 2010 3:13 PM
I'd think that the assessor would treat this as a special case and base the assessment on an appraisal rather than the raffle's advertised value. I've got no information about that prop 90 issue but would guess that this would be treated the same as if you had bought the house in a normal market.
As Chris says though, you would be liable for tax on the windfall on the difference between the assessed value and the price of your raffle ticket.
Posted by: The Milkshake of Despair at March 2, 2010 3:51 PM
then it's clear why the real estate/cash spread has widened to 2:1. not because the market or perceived real estate values have changed. rather it became clear than a $3M windfall would trigger a (approx) $1M tax liability. if you pick the house you gotta pony up $1M to uncle sam so now you have only $2M of equity. a $1.5M cash alternative is probably a pretty decent estimate of where the average person would be indifferent to which option they choose.
Posted by: resp at March 2, 2010 5:31 PM
But you'd have to pay heavy taxes on the $1.5 M cash too. So if the $3M "value" was legit (and stable or rising in value), the rational choice would be to take the house. The spread is likely a nod to the weakening market/illegitimacy of the $3M number.
Posted by: Shza at March 2, 2010 5:47 PM
disagree. my point is it's a lot easier to pay 40% tax on a $1.5M cash winning than it is to pay 40% tax on a $3M house if u got no cash in the bank. what r u going to do? take out a mortgage to pay income tax on gambling winnings?
Posted by: resp at March 2, 2010 6:20 PM
Well, you'd sell the house for $3M, pay your 40% and pocket the remaining $1.8M, instead of paying 40% of $1.5M and ending up with $900k.
Of course, the $3M is not a valid figure, which is the catch.
Posted by: Alexei at March 2, 2010 6:56 PM
OK you are right for the most part. less of course the property taxes you have to pay during ownership and the 5% selling commission of $150K and the opportunity cost of the $1.5M cash not being invested in an appreciating asset which brings the net for the house closer to $1.6M.
yes still way better than 900K. i would take the house and you would take the house but the average person who can't afford the risk may not. i still think the "rafflers" (who probably don't want to be stuck with this boat anchor) have done a more accurate job of making the 2 options closer to equivalent for the average joe vs. the prior auction where taking the cash was clearly a better choice.
furthermore, the closer to the end of the year you win this house, the faster you'd have to move to sell it since you would owe the $1.2m tax in 2010 regardless. what if the auction doesn't take place til later in the year and you can't sell it til after April 2011? they you still gotta front the $1.2M to the IRS before the house is monetized.
Posted by: resp at March 2, 2010 7:32 PM
Resp, depending on some people's income/filing, wouldn't they then be hit with gains tax on that $1.6?
Posted by: FAA at March 2, 2010 9:26 PM
Nice -- I just saw the house in an ad on sfgate (it WILL be familiar to SS regulars). I have to admit, I'm somewhat bummed it's not 311 Marina Blvd.
Posted by: EBGuy at March 2, 2010 10:37 PM
I just saw the ad too; I love this house. It's around the corner from me. It was on the market a couple of months ago, but apparently didn't sell. What do the owners get out of raffles like this? Do they donate the house? Get a percentage of the ticket sales?
Posted by: Bob in Noe at March 3, 2010 7:27 AM
^^^ Just guessing again here, but I'm pretty sure that the owner of the house is not donating. There's probably a private deal between the owner and raffle organizer. The raffle owner has an option to buy the house for a fixed period of time at a predetermined price. I've got a hunch that the predetermined price is closer to $1.5M than $3M. I'm sure that there will be a lively discussion here about the real value of the house.
Posted by: The Milkshake of Despair at March 3, 2010 7:42 AM
Bob, what was it listed for? do you know of any offers? need to know because i am going to win it, and plan to hire a very aggressive appraiser and tax attorney to argue the value is much lower than $3M. or better yet force the charity to disclose the price they paid to support my valuation for tax purposes. thanks.
Posted by: resp at March 3, 2010 8:10 AM
I think it was listed for $2.95 million, but obviously didn't sell. According to the Noe Valley Voice, the average price of a home (including condos) in Noe Valley for 2009 was a little more than $1.3 million. This house is significantly bigger and nicer than "average" and it includes a rental unit. If you could buy it for $1.5 million, I think you'd be getting a pretty good deal, but since I live nearby, I hope you can't :) But if you win it, we can have a neighbors' welcoming party.
Posted by: Bob in Noe at March 3, 2010 8:52 AM
Posted by: eddy at March 3, 2010 9:27 AM
Can anyone (editor) provide the link to an earlier SS discussion of this home? I'm specifically looking for the address in Noe. Thanks.
Posted by: huh? at March 3, 2010 9:56 AM
Posted by: SocketSite at March 3, 2010 10:06 AM
alexei - looks like your strategy of selling the house immediately is looking better since the auction is scheduled for July and you should have plenty of time to realize the sale in the 2010 tax year.
However, I stand firm on my theory that the tax implication is a main reason the raffle runners have widened the cash/property spread.
from the IRS website:
"Income tax is withheld at a flat 25% rate from certain kinds of gambling winnings. Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding.
· Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or lottery.
· Any other wager if the proceeds are at least 300 times the amount of the bet.
It does not matter whether your winnings are
paid in cash, in property, or as an annuity. Winnings not paid in cash are taken into account at their fair market value."
I do not know how the raffle can withhold income tax on a $3M house, but I imagine the IRS will be knocking on your door the next day looking for that 25% withholding.
my bet is if Joe the Plumber wins this he's still gonna take the cash.
Posted by: resp at March 3, 2010 10:42 AM
From the raffle rules: "YBCA makes no guarantee that the Grand Prize winner will be able to sell the House for the value of $3,000,000, nor is there any guarantee that the Internal Revenue Service (IRS) will accept that value of the house for the purpose of determining any income tax that may be due from the winner."
It sounds like you may be able to have an appraisal determine the taxed value of the house, that $3M is a marketing number and not a tax withholding number.
Posted by: FAA at March 3, 2010 11:00 AM
Oooooops. Misplaced my 'not'. I really did mean:
It sounds like you may NOT be able to have an appraisal determine the taxed value of the house, that $3M is a marketing number AND a tax withholding number.
Posted by: FAA at March 3, 2010 11:03 AM
This is stupid.
Posted by: Katy Dinner at March 3, 2010 5:28 PM
I know it all depends on your income... Let's just say that you have no other write-offs and the cash (not the house) was your only income of 1.5 million. Doesn't 40% go straight to taxes?
Posted by: Leo at February 5, 2012 8:03 PM