Antique Auto Raffle Winner's Tax Liability

[Pomeroy41144]

Several members of my local car club have purchased raffle tickets for an antique automobile. 

 

The antique automobile is worth approximately $45,000. 

 

What would be the winner's tax liability with the IRS if they won the antique auto? 

 

Say the winner had bought a $100 ticket. 

 

If the lucky winner went to title and register the car, could he declare to the DMV that the purchase price of the car was $100-- the cost of the winning ticket? 

Edited February 13, 2016 by Pomeroy41144 (see edit history)

[Guest AlCapone]

They will surely establish an a actual or appraised value. Legislation is not drafted in a manner that gives preference to the payer. Lottery tickets and casino winnings are a good example. Wayne

[cahartley]

If the car is truly worth $45,000 the winner's basis will be $100 so will likely add $44,400 to the bottom line on their Form 1040.

The upside is if the winner is in a low income tax bracket they'll still have a very cheap car.

[jpage]

Pa now taxes a registered vehicle by it's confirmed purchase price or by it's current appraised value if the purchase price is deemed too low. That keeps people from cheating the tax man. By law, the winner must pay all state, local and federal taxes on winnings but sometime it's only over a certain dollar value.

Edited February 13, 2016 by jpage (see edit history)

[alsancle]

I had a buddy who won a brand new car at a Red Sox game.  The dealer pumped the retail price up,  this was a mid 80s Chevy Blazer that was a POS from new.   The tax liability came to almost what you would pay for the car in real life.

 

If you have zero income it might not be bad.

[RansomEli]

In general, the IRS treats raffle winnings as ordinary income. So, the car's retail value would be added to your gross income for the year in which it was given to you. You could make a cases for deducting the $100 ticket price from the amount, but that's a pittance. 

 

If you earned $30,000 in the year and won a $45,000 car, you would have to report income of $75,000 for the year. 

[Paul Dobbin]

There was a great winter event in Florida with a flea market, auction, car corral, antique car races, food, entertainment, camping, and a car show.  Admission was $10 @ day and that included a raffle ticket.  Usually the car was some old #4 car with a #1 value in the advertisements. Consequently, I never filled it out and entered.  Reason:  The taxes would exceed the real value of the vehicle that had a advertised appraised value.

I've heard of winners that fought the IRS and state Tax Collectors, but I've never confirmed that anybody ever won that battle.

[John_S_in_Penna]

Several members of my local car club have purchased raffle tickets for an antique automobile. 

The antique automobile is worth approximately $45,000. ...

 

Have your friends ever thought hard about the odds of winning?

If they gave it more thought, they might not buy in.

 

If buying a ticket for a raffle, ask HOW MANY tickets will be sold.

If the tickets are $100 each, it's likely that around 1000 tickets will be sold.

That's $100,000 for a car that's theoretically worth $45,000.

 

Suppose you guarantee your chances by buying ALL the tickets!

You will have spent $100,000 for a car worth at most $45,000.

You can see, therefore, that It's not a zero-sum game:  The odds are stacked against you.

This is an example of how getting something for nothing is a 

misleading promise.  There are better ways for your friends to spend their money.

Edited February 13, 2016 by John_S_in_Penna (see edit history)

[Pomeroy41144]

Have your friends ever thought hard about the odds of winning?

If they gave it more thought, they might not buy in.

 

If buying a ticket for a raffle, ask HOW MANY tickets will be sold.

If the tickets are $100 each, it's likely that around 1000 tickets will be sold.

That's $100,000 for a car that's theoretically worth $45,000.

 

Suppose you guarantee your chances by buying ALL the tickets!

You will have spent $100,000 for a car worth at most $45,000.

You can see, therefore, that It's not a zero-sum game:  The odds are stacked against you.

This is an example of how getting something for nothing is a 

misleading promise.  There are better ways for your friends to spend their money.

 

Thanks for the reply. 

This is not how this raffle is set up--the ticket revenue does not exceed the appraised value in this case,  and the "odds" are not really my concern.  Just interested in the tax problem. 

 

Also, I included the $100 ticket price not to offset tax liability, but just as a marker for a potential purchase price. 

When you title and register in our state, the DMV wants to know what you paid for the car. 

 

Thanks to all who replied. 

[Pomeroy41144]

Thank you very much for the reply RansomEli.   

 

 

 

 

 

 

In general, the IRS treats raffle winnings as ordinary income. So, the car's retail value would be added to your gross income for the year in which it was given to you.

 

 

That's what I thought.  Thanks. 

 

 

 

 

 

You could make a cases for deducting the $100 ticket price from the amount, but that's a pittance. 

 

I included the $100 ticket price not to offset tax liability, but just as a marker as a potential purchase price for registering the car. 

When you title and register in our state, the DMV wants to know a purchase price. 

 

 

 

 

 

 

 

If you earned $30,000 in the year and won a $45,000 car, you would have to report income of $75,000 for the year. 

 

Thanks, this is what we were thinking it would be.  Taxed as income. 

 

 

 

 

 

 

Just having some fun with this.  Thanks to all who replied. 

Edited February 13, 2016 by Pomeroy41144 (see edit history)

[John_S_in_Penna]

Thanks for the reply. 

This is not how this raffle is set up--the ticket revenue does not exceed the appraised value in this case... 

 

Mr. Pomeroy, if the ticket revenue does not exceed the car's appraised value,

then the organization is making no money from the raffle.  They're doing

all the work of buying a car and selling all those tickets just for the fun?

 

I suspect, rather, that the appraised value is then inflated,

so the situation I described in posting #8 really is occurring.

Other people might benefit from thinking this through, even if you already realize it.

 

I concur with the others that gambling winnings are treated as

"income" on your tax form and are taxed--perhaps federally, by the state, and locally--

at the typical income rates.

Edited February 13, 2016 by John_S_in_Penna (see edit history)

[joe_padavano]

If the car is truly worth $45,000 the winner's basis will be $100 so will likely add $44,400 to the bottom line on their Form 1040.

 

Um...

 

$45,000-$100 = $44,900 total winnings. 

[JACK M]

I have often wondered how many game show winners are inclined to walk away from that new car, or new kitchen etc. Simply because they don't have the dough to claim the prize.

Most contestants on TPIR or LMAD don't look to be the affluent type .

[Pomeroy41144]

Mr. Pomeroy, if the ticket revenue does not exceed the car's appraised value,

then the organization is making no money from the raffle.  They're doing

all the work of buying a car and selling all those tickets just for the fun?

 

 

 

 

The auto, which some of us have actually seen, was donated by an enthusiast, actually known to some of us, to a legitimate non-profit that we in our local club are all familiar with.  The organization holding the raffle paid absolutely nothing for the car.  The car is being raffled to finance a project undertaken by the non - profit.   The car is worth approximately the price of the number of tickets sold.  No scam here.  Our members are familiar with or are supporters of the said non profit.  We know how many tickets are being sold and approximately how much the car is worth. Thanks for the reply and the help.

Edited February 13, 2016 by Pomeroy41144 (see edit history)