Out of house and hope?
Man wins Tyler mansion, tax bills that go along with it
By JESSICA LEEDER / The Dallas Morning News
TYLER, Texas – Don Cruz moved to East Texas thinking he'd be living in a dream – a $1.5 million lakefront sanctuary he won in a Home and Garden Television "Dream Home" sweepstakes.
But the massive tax bill delivered with his winnings has blemished his utopia.
Mr. Cruz, 40, moved his family into the 5,000-square-foot Lake Tyler residence last month with the hope that he could raise the money by renting out parts of the property, opening a bed and breakfast, and charging for public tours.
But a city ordinance prohibiting commercial use of the land – and the Tyler City Council's unanimous decision Wednesday not to change that ordinance – have foiled his plans.
Now Mr. Cruz and his wife, Shelly, face a quandary: Come up with the $631,000 they owe in federal taxes by April, plus an estimated $32,300 in property taxes owed to Smith County and the Arp Independent School District, or sell the house.
If he decides to sell, he'll join the ranks of every other HGTV Dream Home winner since the contest began in 1997, with the exception of one family that converted its home into a co-op share.
The popularity of home giveaway sweepstakes continues to grow; there were nearly 40 million entries to this year's HGTV contest.
To sell or not to sell. What would you do? Comment | View Results But the bills that accompany such windfalls often catch winners by surprise and catapult them into a tax nightmare.
"We're going to try everything we can to stay," Mr. Cruz said. "God gave us this house. It's not for sale."
Mr. Cruz appeared before the council looking nervous and wearing the only suit he owns.
He told the council Wednesday that he knew when he moved in, he would have trouble paying the taxes. Mr. Cruz does not have a job; he was injured at work and walks with a cane. He's already turned down several offers from interested buyers and from admirers willing to pay up to $25,000 to use his property.
But by his own calculation, he would have been able to make $5,000 a day by renting out his boathouse and master bedroom.
When council member Charles Alworth challenged his math, Mr. Cruz appeared stumped.
"As long as you have faith in God, the money will be there," he told the council member.
The question is how.
Shawn Novak, a federal tax specialist at Boise State University in Idaho, said that winners often can't even afford to maintain the massive homes or pay the electric bills. "They'd be a lot better off to just win money," he said.
And previous winners would agree.
"Winning something like this is wonderful, but you don't know the price you'll pay," said Belinda Brown, a Kingston, Tenn., resident who in 1999 won a $550,000 Dream Home in Santa Rosa Beach, Fla.
"There's just no way, unless you're independently wealthy, that you can keep something like that," she said.
Fleeing the country, she joked, was tempting.
Like Mr. Cruz, Ms. Brown also thought she could rent her home to help offset her taxes. Although she wasn't up against a city ordinance, she still couldn't make enough money. After two years, she was nearly $300,000 in debt to the IRS and was forced to sell the house.
"I cried and gave it up," she said.
Milton O'Bryant has a similar story.
As soon as the Midland police officer found out about the $450,000 in taxes he owed on the 2002 HGTV Dream Home on Maryland's Chesapeake Bay, he decided to sell.
"We had people lined up ready to purchase it," he said. The 2,800-square-foot home went to the first person who offered Mr. O'Bryant's asking price: $1.3 million.
With the money left over, Mr. O'Bryant plans to retire and build a dream home of his own near San Antonio.
"All of our winners who have not kept the home have sold the home, paid the taxes and had a nice nest egg for whatever they want to do," said Emily Yarborough, a spokeswoman for HGTV.
"No one loses money by participating in the dream home," she said. They could, however, lose their dream.
Mr. Cruz, from rural Batavia, Ill., said his life has changed quite a bit since he was announced as the 2005 HGTV winner. His life story has been put on Web sites. He's had numerous television appearances. He's developed a small Internet following of HGTV watchers campaigning to raise money for him.
And he gives free tours of his home – a spacious resort-style property with a swimming pool, separate honeymoon suite, two-story dockhouse, a THX-certified entertainment system and designer kitchen.
He's also planning to house foster kids in the coming months.
At Wednesday's council meeting, he was flanked by a producer and two cameramen from Inside Edition. They sat expressionless as Greg Morgan, operations manager for Tyler Water Utilities, said it wasn't in the best interest of Lake Tyler residents to grant Mr. Cruz's request.
The ensuing debate was short. Within minutes, the council defeated Mr. Cruz's request.
Outside, Mr. Cruz would not say what his next move would be. Nor would he say if he's retained a financial adviser or lawyer.
On his way home, he stopped at the nearby Cathedral of the Immaculate Conception to pray.
"We have faith everything will work out," he said.
TAX MAN COMETH:
Here's how home makeover and giveaway shows help winners tackle taxes:
•ABC's Extreme Makeover: Home Edition subleases contestants' property for up to two weeks while improvements are under way, capitalizing on a provision in the tax code that releases homeowners from paying tax on improvements made while the property is being leased.
•Producers of Fox's Renovate My Family give homeowners a check to cover taxes, spokesman Matt Laviano said.
•HGTV producers advise winners to consult lawyers and financial planners. "We're not in the business of advising them financially," spokeswoman Emily Yarborough said.
As for the Internal Revenue Service:
•If you win the home of your dreams – or the car of your dreams, or any other big, heavenly prize – you might as well have just gotten a huge raise. Prizes and awards are taxable as ordinary income even if they're not liquid, said Martin Nissenbaum, author of the Ernst and Young Tax Guide and national director of personal income tax planning.
The best advice for sweepstake addicts:
•Be wary of what you win.
•If your loot includes a home worth $1 million or more, you'll owe a minimum of $350,000, said Shawn Novak, a federal tax specialist at Boise State University.
SOURCE: Dallas Morning News research
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