Paying Taxes on Raffle Winnings
Taking home a prize is not as cut-and-dried as you may think.
I won a Toyota Prius in a charity raffle. Do I have to pay taxes on it? What if I sell it right away? --P.A., Berlin, Md.
It may seem like a dirty trick, but you will have to pay income taxes on the fair market value of the car minus the cost of the raffle ticket—whether you sell the car or not. The organization conducting the raffle must submit Form W-2G to the IRS with the value of the car, which you report as “other income” on line 21 of your Form 1040.
The value of the car is determined by what is reported on Form W-2G, not the value reported on a Web site or even the price you get if you sell the car, says Mark Luscombe, of tax publisher Wolters Kluwer, CCH. But you may be able to influence the amount reported. Greg Rosica, of accounting firm EY, recommends researching the average transaction price for the car and sharing that with the charity before it issues the tax form. You can find transaction prices at KBB.com or Edmunds.com.