For the past two days, I covered the two local “reveals” of a new coffeeshop and home arranged courtesy of the ABC show “Extreme Makeover: Home Edition.” Certainly, there were tender moments when the recipients were surprised, but I kept wondering: Would these deserving people be similarly shocked when they finally get the tax bill? I’d read the stories online about certain Home Makeover ”winners” struggling with maintaining the expense of their new homes, with some even ending up in foreclosure.  So, each day, I asked an executive or senior level producer about it. On set, I got the run-around.

I was told to email an executive in California, so I did, with these two questions:

Just got back from the Reveal. Two questions I need answered for the story I”m writing on deadline:

1. How is the tax liability for the home/biz makeover handled? Do individuals have to pay out of pocket for the value of the gifted items or home? Or do you take advantage of a loop hole in the law? Are increased property taxes the responsibility of the home and biz owners?

2. How many EMHE homes are still occupied by the original owners? At least one has gone into bankruptcy, and one has been sold, any others?

Here’s the response I got:

Hi Aisha,

The show advises each family to consult a financial planner to help them understand and budget for any expenses that they may occur as a result of their new home. Often times cities and counties have helped the families locate counselors to assist them with this transition.  Ultimately, financial matters are personal, and we work to respect the privacy of the families.

Thanks,
Chris

 Even though the producers seem to be evading the question, I knew Sam Malek and the Martirez family would not be able to evade the tax man. This is how the financial blog, The Digerati Life, explains how the show exploits a tax code loophole:

• 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 this advice and legal wrangling, some families still end up in financial trouble. Just this summer, a family in Atlanta went from getting an Extreme Home Makeover to ending up in extreme foreclosure. You can read that story here.

The Digerati Life asks this thought-provoking question on their blog about the life-changing gifts:

Could these prizes be more trouble than they are worth, if you are not financially prepared to receive such material gifts?