Hey, remember the San Francisco Dream House Raffle, that fundraiser for the YBCA in which the purchase of a $150 ticket got you a chance to win a $2.4 million dollar house or $1.8 M in cash? Over the weekend, the Chronicle’s Kathleen Pender gave us some insights into why the winner of that raffle (and many others) chose to go for the dough instead of the land, with an article that gives the scoop on weird and wacky world of the Dream House raffle racket.

Some interesting points:

— If you win the raffle like this and opt to take the house, “the winner must give the nonprofit 25 percent of its value for federal withholding before title can be transferred. The winner also pays closing costs, property taxes and other homeownership expenses.” Shit!

— Since this is, after all, a fundraiser, the nonprofit protests themselves from any losses by setting a minimum number of tickets that must be sold for the prizes to be awarded. If that minimum’s not met, “the nonprofit typically agrees to split the net ticket proceeds (after all raffle expenses) with the winner 50-50. Or it may pay a certain dollar prize based on the number of tickets sold. This is disclosed in the raffle rules.” So you could pay your $150, the raffle could cost the organizers a ton of money, and you as lucky winner may end up with squat.

— If you win a cash prize of more that $5,000, the nonprofit will withhold 25% in federal income tax, but won’t withold state tax — so you’ll have to come up with it by the end of the year. If you’re not a CA resident, the nonprofit will also withhold 7% of your winnings for sales tax. How wonderful to win a big cash prize, see it whittled away by taxes, then get hit with still more taxes at the end of the year. Makes working for a living look better and better.

the author

Eve Batey is the editor and publisher of the San Francisco Appeal. She used to be the San Francisco Chronicle's Deputy Managing Editor for Online, and started at the Chronicle as their blogging and interactive editor. Before that, she was a co-founding writer and the lead editor of SFist. She's been in the city since 1997, presently living in the Outer Sunset with her husband, cat, and dog. You can reach Eve at eve@sfappeal.com.

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  • Xenu

    Free money is free money. What’s the big deal?

    And of course it will get taxed to hell. You’re in the same boat if you win the lottery, you win big at poker, etc.

  • Eve Batey

    Since you ask, the deal (don’t know how big it is) is that:

    1) there might not be any free money at all, even though you pay big for a ticket to win some

    2) the free house being dangled in front of entrants is not so free. I don’t have 25% of $2.4 M to pony up to claim that prize, let alone money for closing costs and all that stuff.

    I don’t think anyone’s surprised that winnings are taxable. If I communicated that in the article, my deepest, gravest apologies.

  • cedichou

    Eve, most likely you should be able to borrow those 25%. That would be a loan with 75% down, you even would get a great rate. Still, that’s a bitter pill to pay if you believed you’d get a house for really really free.

    On the other hand, the tax rate on this is ridiculously low. 25%? Isn’t the tax marginal tax rate on incomes over $2mil around 35%?

  • Seaside Raffle

    I agree with Xenu, free money is free money.

    Another great House Raffle can be found at http://www.BeachRaffle.org Just a $50 donation to the Boys & Girls Club of the Big Bend, enters you in a chance to win a $1.55 Million beach home in Seaside, FLPr