Extreme Makeover: Home Edition Lessons, Pay Taxes On Your Winnings!

by Silicon Valley Blogger on 2007-05-0329

This is no free lunch, but wouldn’t you still prefer having a taste?

Wouldn’t you like to be a chosen homeowner for the ABC show “Extreme Makeover: Home Edition”, when a team of top builders will alight upon you, change your life in a few short days and turn your environment into a grand statement of luxury? Oh yeah, if only to be blessed by such fortune. There don’t seem to be any eligibility rules for participants in the show, except perhaps that you have a down-on-your-luck story that begs to be transformed into a Cinderella tale with a happy ending, replete with that unimaginable, prized state-of-the-art home.

But before you decide to apply as a participant in this show, you may want to step back and think about how your life could change if you ever do get selected for an episode. It’s one of those things where the saying “be careful what you wish for” can actually apply. This is because many folks who thought they were going to get all their life problems answered by winning a spot at Extreme Makeover have actually met with other headaches. But before we go into that, let’s check out some of the sweet rewards you can get out of becoming a “winner” in this show.

Extreme Makeover Before & After Home Pictures

BEFORE

AFTER

Before Kitchen       After Kitchen
Before Master Bedroom       After Master Bedroom
Before Baby Bedroom       After Baby Bedroom

Paying Taxes On Extreme Makeover Home Edition Improvements

But as it goes, after such a house overhaul, you’re probably going to face quite a hike in taxes. Let’s see a few cases in point.

Case #1

The new 4,600-square-foot house, valued by the city of Encinitas at $410,474, already is on the radar screen of County Assessor Gregory Smith. Before work started, the 31-year-old house measured 1,212 square feet on a 7,744-square-foot lot.
Smith said he expects to send Brian Wofford (the homeowner) a supplemental property assessment statement late this year that will likely double the present property tax bill of $2,698.

Case #2

Last year, the Jackson County Assessment Department used an obscure county ordinance and a new appraisal to sucker-punch firefighter Stephen Johnson with a property tax bill more than three times what he paid the previous year. It began when the county issued Johnson a $3,891 tax bill. The county claimed his new six-bedroom home was worth $348,089 — in a neighborhood where most houses barely crack six figures.

And finally Case #3

Before the makeover, a small split-level with faulty plumbing and steep stairways was home to the Llanes family. It was assessed at $222,200, and they were paying about $6,110 a year in taxes, according to Bergenfield Tax Assessor Art Carlson. But the value of their property has more than doubled: Carlson estimates it’s worth about $497,000, putting the Llaneses’ tax bill in the new year somewhere around $14,550.

Amazingly, there are more such cases of this scenario popping up now and again. So what’s the show got to say about this? There are actually some things done to ensure that participants and guests in the show are taken care of. There are supposedly some preparations made and financial cushions that are afforded the players to help mitigate the sudden adjustments to their economic status and money obligations. How do they hedge any tax problems that do come up?

What Financial Preparations Are Afforded The Players?

  • Players are granted lump sums to cover tax liabilities, such as in the case of Rocket Science Laboratories, which produces Fox’s “Renovate My Family.” But such tax payments are considered income so adjustments are made to ensure that ultimately, NO tax is owed. You win a ranch and you get additional bucks to cover the taxes: now that is SWEET!
  • Renovations to an existing house are considered tax exempt by allowing the said property to be leased or rented to the production company for 2 weeks while the work is happening. “Extreme Makeover” employs this strategy to avoid incurring taxes for the work they do. There’s actually a tax provision that allows homes to be rented for less than 15 days a year with no tax consequences, even while improvements are made by the tenant for that time period. The voluntary improvements should be considered of no value to the owner — obviously that’s something the owners here would claim.
  • The players are encouraged or advised to refinance their newly refurbished house, and with the increase in equity, they will be able to pay off the additional property tax generated.

Even with all the hand holding these shows demonstrate and offer their players, the shows have great intentions but discount the long term financial impact these changes will bring some of the families. According to a Newsweek report, a few of these television show winners become disgruntled with their winnings. Could these prizes be more trouble than they are worth, if you are not financially prepared to receive such material gifts? Beyond taxes, there are maintenance, repair and operational costs that go into running and owning a house. A bigger house can be quite a headache for residents who aren’t prepared to handle the responsibility of such ownership.

The one big lesson that I take from this is how important it is to have a long term plan when faced with possible financial changes. Even windfalls and good fortune can have consequences that need to be prepared for and reasonably addressed, hopefully prior to their actual occurrence.

On a lighter note, I’ll add one more piece of silly advice: if you’re going to try out for a game show, why not audition instead for those that offer cash prizes, so that there won’t be sticky financial issues to face, like periodic taxes and the challenge of physically maintaining such illiquid assets. Just don’t be like Richard Hatch, the Survivor reality show contestant and winner of Season 1, who thought he could get away with not paying up half of the booty (to the government). He ended up in the slammer.

Copyright © 2007 The Digerati Life. All Rights Reserved.

{ 18 comments… read them below or add one }

broknowrchlatr May 4, 2007 at 5:06 am

There are 2 problems I have with this show

1) They like to build mansions in the ghetto. What is the big deal about insisting on building on the same property? They invariably build these next to houses that are much smaller. The result is that the yard is tiny and there is no way the house can be sold for near what it was built for.

2) Is it just me, or are the “before” pictures above pretty nice? Looks better than my house… particularly the kitchen.

3) The people who get these upgrades do need help. I get it. What they don’t need is 4 plasma TVs, indoor basketball courts, mural walls, and stuff like that. It would be a much better result, if say, 3 deserving families got an upgrade of 1/3 of what these people get. These people need functional upgrades, not asthetic ones.

Lazy Man and Money May 4, 2007 at 11:00 am

I’ve heard that a lot of these contestants sell their homes at the first chance they get. Even if they have to a lower than normal price to clear it out, they should still make a good penny on the deal.

Silicon Valley Blogger May 4, 2007 at 4:00 pm

@Broke Now, I agree — why not relocate before rebuilding? It may be too tough to find available alternative spots that will suit the owners. The houses also seems overdone sometimes. Too many bells and whistles really, but that’s what makes the makeover so “extreme”, making these projects live to the show’s name.

@Lazy — That’s the best way to deal with this situation as a homeowner: Sell out and pocket the bucks. I also agree that winners will probably have to discount their list price given that most neighborhoods the show works in typically don’t house the kind of “dream homes” they build. Whoever buys such a home would be settling for the biggest structure on the block, which carries with it a discounting factor in real estate to begin with (unless it’s an up and coming area).

Mortgage Leads May 8, 2007 at 9:36 am

I think the lesson to learn here is to liquidate your earnings as soon as possible. Either get on the shows that give you cash, or sell your material (recurringly-taxable) winnings. Disclaimer: I was asked to be on one of those shows and I didn’t want to deal with the mess at all, I just told them no. Probably not the smartest choice on my part, but it was easy ;-)

DKD June 29, 2007 at 8:11 am

I work for a home builder who has volunteered to build two such homes for EMHE. In both case, financial funds were set up to help the family adjust to the financial changes.

In the case of our Raleigh build, our employees’ contributions helped set up a fund to pay off all of the family’s medical bills, pay off their mortgage, and leave a little for other needs. With no house payment or medical bills, any reassessment won’t hurt. We made a point of not building an oversized house not in keeping withe neighborhood(we share broknowrchlatr’s distaste of building McMansions in small-home areas), and the home, while larger than their old one, is more energy efficient, and their power bills are actually slightly smaller now.

In our Arizona build, scheduled to air in August, we again built a house just big enough for the family, which also got a fund to help them out. Since they are on the Navajo Reservation, they don’t pay property taxes, and since the house is a zero-energy house (ever see a power meter run backwards?!?!) they should be able to handle it financially.

One item that may be of interest to readers of this blog: ABC utilizes a section of the tax code that keeps homeowners from having to pay taxes on improvements made by renters of their property if they rent for less than 14 days. EMHE actually has the contestants rent them their house, they (read: we) make the improvements, and thus the families aren’t taxed by the IRS on the increase in value of their new home.

Hope this answers any questions. If not, feel free to ask. We enjoyed contributing our time and materials to this worthwhile project, but we wanted to make sure we were helping solve a family’s problems, not causing new ones.

Jacklyn October 28, 2007 at 6:09 pm

HI,My name is Jacklyn Reese and i am 15 yrs. old and i have been living in the projects for 15 yrs. with my 2 older sisters and my little neice who’s 4.My mom whos Janice Reese who’s been living in the projects for 17 yrs. has always tried to make the best for us. She works 5 days a week to get us what we need to survive in life. We have never ask for much but for our mom to be happy and 2 see her smile again.We would love to make her dream come true to get a home of her own because she has always made our derams come true or at least tried. My mom is not a choicey person she apriciates anything that is given to her. She has been through so much in life and i just want her to be happy so please and thak you for this oprunity to tell you a little something about our life!!!Bye

Leigh Cory November 11, 2007 at 7:06 pm

I would like to know how to enter my daughter and son in-law in a chance to get a new home built for them because they actually live in a dump of a house that they are going to lose in February 2008 because her husband bought a house that had back taxes due and he did not pay any of the bill before he married our daughter.

A tree is growing in part of the house and it needs so much money invested in it that it is not worth repairing even if they could afford to do it.

How do I tell their story so that they could have a chance to be considered for a home makeover and pay off the mortgage?

Sincerely,

Leigh Cory

Melanie DeAeth December 5, 2007 at 8:55 am

Hi, I got an Extreme Makeover House in Dec. 2005. We’re the family that runs an animal rescue out of our home in Texas. True Blue Animal Rescue, http://www.t-bar.org The showed aired in Jan and then again in the Spring of 2006.
Our taxes have gone up every year since the makeover and the tax people just came out again yesterday to measure again and increase our property value! We have had to make changes to accomodate the animals and each time we do, they hit us with a bigger tax bill. We now have taxes that are way over our means but I wouldn’t change a thing! We have been able to help more animals since the makeover than ever before. The makeover gave us a voice to help animals and to help other people help animals and start rescues too!
I don’t know what the taxes will be after this latest assessment, but I hope we can swallow yet another hit! I am a full time teacher and my husband drives a school bus around running the rescue so we do have income. Our mortgage was not paid off so the increase in taxes and insurance have been tough to swallow.
I wonder how many people do sell their houses when the taxes become too much for them? Is there any way to survey that?
Also, for those who want to apply for EMHE, go to abc.go.com and go the the Extreme Makeover Home Edition page. You’ll find the application to apply for a makeover there. I know, I sent mine in myself!!
Melanie DeAeth
True Blue Animal Rescue
http://www.t-bar.org

Sheila Davis March 10, 2008 at 3:01 pm

I would like to nomiate my mom and dad for an extreme make over on their house. My father is on oxgen alot thru the day. They have my brother and his three girls living with them. And me and my daughter too. They need the house updated but they are on SS and what I bring in from my job. Please consider my family for the show they really need help with the house. They bought the house and land but it needs alot of work. Please help them out if you can. They are aways doing things for other people but not their selfs. Thank you very much. sincerly yours Sheila Davis

ciara June 22, 2008 at 5:47 pm

my name is ciara and i’m 13 years old. i am would like to nominate me step mom and dad for a extreme makeover on the house. we are ready to lose our home, and my step mom has survived cancer and has mrsa and needs a clean home. it is me, my sister, my brother, and my step mom. please help us, i am scared to be living on the streets. thank you, ciara

Silicon Valley Blogger June 22, 2008 at 6:03 pm

Those of you who are interested in joining the “Extreme Makeover” show, I apologize but this is not the right avenue to let your interest be known. I am not at all affiliated with the show so I would suggest you check the ABC network directly and sign up with them.

Good luck with your plans.

Recycle Already! November 8, 2009 at 8:07 pm

While the concept of the show is wonderful, it seems out of touch with the environmental issues of our time. First they tear down a complete house, and dump the remains in a land fill. Don’t they know the largest component of landfills are building materials. Why isn’t anything ever recycled? The bricks from today’s tear down could have been recycled along with what looked like good plumbing fixtures, wood products, or cabinets. Couldn’t Habitat for Humanity or some other group use the some of the building materials?

Secondly, the houses they build seem too large to heat or cool. Why does a family of four need a 3500 square foot house? The show is out of touch with where our housing needs to evolve. They would be wise to consider the carbon foot print of what they create.

Going green would be a big help for the show.

gabriela galindo January 17, 2010 at 4:48 pm

This comment is directed to the folks at Extreme Makeover (not to The Digerati Life, which is NOT affiliated with the show at all).

Hi. I love what you do and how you help the people who are in need. There are a lot of us out there who need the help. So you guys keep doing the best at what you do, like I do. I have 5 kids and it’s hard being a single mom. That’s why I take it one day at a time. I have to, for my kids; they are my world and that’s why I try so hard.

We watch Extreme Makeover every day. I could say I am your number one fan. Every time I watch the show, I cry. That’s why I am so happy that this show is around. God bless you. You are angels to many of us so keep it up. Thank you and God bless all of you and your families. Hope to see you in Austin, TX soon.

JT Pratt January 19, 2010 at 2:57 am

I see this post is in your archives now, but it still rings true today. I always wonder out of all the extreme makeover homes out there – how may get sold for the cash.

Judy March 3, 2010 at 8:36 pm

I don’t understand how a family moves out of a modest size home and EMHE builds them a house 5 times bigger. And the husband in Mineola Texas lost his job and the children are adopted and handicapped……..HOW do they afford to pay the electric bill, water bill etc. ???
I’m sure they plan on living there for a long time. Then there’s TAXES!!!!!!!!….. Upkeep!!!
INSURANCE!!!!!!….If they weren’t making it so well before, is there indefinite help for them to maintain such a huge house for as long as they are there?????

Thank You,
JUDY

Garciagirl April 20, 2011 at 5:27 pm

I love the show. I hope that if they ever come to make me a home, I don’t end up with bad things happening with taxes like a lot of you have experienced. I need a liveable house but don’t need a mansion with plasmas and computers. Just the house. I’d love something big enough for me and my family.

Angela July 17, 2011 at 11:36 am

What happens with the IRS tax law if the family is given a lot to build on and there was no existing home. These circumstances would not apply in avoiding the “income tax” would it?

This is what has happened in our town with the extreme home makeover. The family’s home was demolished but the show was unable to build upon their existing home lot. A piece of property was donated and the home was built there. There was no existing home for the show to ‘rent’ in order for the family to avoid those taxes. Am I missing a loophole?

Ernestine October 26, 2011 at 3:14 pm

I love this picture because it is for people that are less fortunate and the people who have had trauma in there lives. I wish that I could be one of the people to be on the show. It is not all about a story where some people never had an incident happen to them and think that everything is perfect for them and they are still not happy. Many people take life for granted. Look at your situation first instead of criticizing those people who give back to society. Most people just think for themselves. Most things like lottery, sweepstakes are for people who already have a lot be happy for!

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