How Do I Advertise My Contest?

How much would a person living in U.S pay in tax if he/she wins a home in a contest(not a raffle but kind of sweepstake) online?

• Well I am confused between raffle and sweepstake and contest.But all I know that Raffle consists of 1.Chance 2. Consideration and 3.Prize. and contest doesn't have Chance. Some states  in U.S prohibit raffle as those states have statues and laws. I have read all the rules of raffles here: http://www.dca.ca.gov/publications/legal_guides/u-2.shtml#endnote62 But what if a third person wins a home in contest( a kind of sweepstake) conducted online..How much would he/she pay for the home. Suppose a seller selling a $20 Million home to any person who collects funds for the home via collecting money from other people and sells the home to him/her.In that case how much he/she liable to pay tax(state,federal). Will that be half of money of 5 or 6% or 50% as I think winning or getting a home is like winning $20 Million in gamble. http://money.cnn.com/2012/11/30/pf/taxes/powerball-lottery-tax/index.html The person conducting the raffle is not based in US neither a US citizen. The most important thing is in case,If I require a lawyer for the state clearance,where can I best find a lawyer online? However another issue which I can't find solution is that -only the property is in United States(California) but people can participate from anywhere in the world.Moreover I am not selling ticket online.I am conducting a contest,like sweepstake that means  For example, entrants need to answer a trivia question, write an essay, or create a recipe to participate,i.e entering sweepstake with skills ,that is why probably this is not a lottery.-So Chance is not in there in this sweepstake  and it may be called contest. Related question.

• Answer:

  I'm going to leave my original answer here although the question details were changed since I answered it. Most of the answer is still valid: From the perspective of the owner/seller, this is still a disposition of a real property interest, with capital gains taxes. From the perspective of the winner of the contest, the FMV of the house would be taxable and included in ordinary income and the winner would still be responsible for the closing costs. The withholding provisions for the nonresident alien (10% of the realized income) and the winner of the contest (25% of the FMV of the prize due and payable before the title can be transferred) would still have to be met. I am not an attorney, and you should absolutely consult one before proceeding, but as I understand it, if this is a contest of skill, the organizer of the contest will have to make sure that the rules are clearly stated, that the criteria for judging are fair and impartial, and that the judging is conducted by an impartial judge or judges, otherwise there's a good probability that the state of California will rule this to be an (illegal) game of chance. Also as I understand it, the state of California's rules and regulations control here because the property is located in California, even if everything else is done online from outside of the state. As a purely anecdotal aside, most of these contest/raffle/sweepstakes offers conducted by or on behalf of individuals fail miserably. What will you do if you only get a few thousand dollars in entry fees? ------------------------------------------------------------------------------------------------------------------ First of all, a raffle cannot legally be conducted in California by an individual; it would have to be conducted by, or on behalf of, a legally registered California non-profit or charitable agency. The FMV of the home is considered to be taxable income to the winner of the raffle, and because the FMV exceeds $5000 the winner of the raffle will have to have 25% of the FMV of the home available in cash, to be given to the group conducting the raffle before the winner can take possession of the home. Normally, the winner must also pay all of the closing costs. For that reason, the winner of a home raffle usually has the choice of an equivalent cash prize instead (where taxes can be taken out). The agency conducting the raffle signs an agreement with the owner of the home in order to conduct the raffle. Usually, this agreement takes the form of a lease with an option to buy, where the seller leases the home to the nonprofit for the raffle period and the option to buy is triggered should the winner decide to take possession of the home; the owner in turn agrees not to list the home for sale during the period of the raffle. If the winner chooses the home, the property is sold to the agency with the sales price being the FMV of the home, and treated by the buyer as though it were a disposition of a real property interest subject to capital gains treatment. Both the income from the rental to the agency, and the capital gains from the sale should one occur, are sourced based on the location of the property - for a nonresident alien this means that if the property is located in the US the nonresident alien is subject to US taxes on the income. Usually, a rental of real property would not be considered to be effectively connected income, so the agency for tax purposes would withhold 30% of the gross amount of the lease from the owner unless a tax treaty applies that specifies a lesser amount. If the property is sold, the buyer is required for tax purposes to withhold 10% of the amount realized by the seller, when the seller is a foreign person. The raffle agreement usually includes a provision that specifies a minimum number of tickets that the agency conducting the raffle is required to sell in order for the raffle to be conducted. For a $2 million FMV house, for example, the agreement might state that the agency must sell $5 million worth of tickets before a date two weeks prior to the raffle, otherwise the house will not be raffled and the option to buy will expire.