A photo caption with a Nov. 17 Business article incorrectly described a Maryland house up for raffle as being in Edgewood. It is in Edgewater.
The High-Stakes Game of Raffling Off Your House
Monday, November 17, 2008
In the casino of the housing market, Tom Walters is holding the wrong cards. He's a mortgage broker, so business has been slow, and on his own house, payments have risen to about $6,200 -- too much to handle.
Instead of gambling on a sale, Walters and his wife decided to let others take a chance.
So for just $50, people can buy a raffle ticket for his six-bedroom, 4 1/2 -bath, 6,000-square-foot home on a two-acre parcel just outside of Annapolis. Estimated value? One million clams.
Walters is partnering with Annapolis-based We Care and Friends in the raffle venture because under Maryland law only charity groups can raffle off houses. The charity must sell at least 31,500 tickets to pay off the loans and keep its cut of at least 10 percent, Walters said.
This is the 10th house raffle attempted this year, according to the Maryland secretary of state's office. But only one, in Hagerstown, has been successful so far.
In the Walterses' raffle, the winner (to be picked Dec. 31) gets the home, free and clear. No closing costs. No mortgage payments. No broker fees. The Walterses get to walk away.
"It's kind of bittersweet," Walters said. "We've put so much into this that it'll be tough moving, but at the same time you have to do what's right for the family."
There is, however, the issue of, ahem, taxes. (Isn't there always?) Whoever wins the house would have to pay property taxes, currently about $3,000 a year but likely to increase when the house is reassessed, Walters said. And the new owner would also be taxed on the value of the home because that is technically income under IRS rules.
"It's just like winning the lottery," said Walter Deyhle, director of the tax department at Gelman, Rosenberg, Freedman, a Bethesda accounting firm. "If the fair market value of the home is $1 million, they'll pay ordinary income on that."
But there is some good news.
"If they have other gambling expenses, they can deduct those," he said, "so if they go to Vegas and lose, they can deduct those losses." So that $50 ticket? Totally deductible.
News of the Walterses' raffle plan has prompted inquiries from as far away as Korea, thanks to an article in the Korean Daily News in September. A woman in Wisconsin is among the 10,000 folks who have ponied up for a ticket.