# HGTV 'Dream Home' proves tax nightmare



## DianaMo (Oct 22, 2003)

'Dream Home' proves tax nightmare

The Associated Press
Published February 10, 2006, 6:59 AM CST



> TYLER, TEXAS -- For Don Cruz, living a dream became too much of a financial burden.
> 
> When the 40-year-old from suburban Chicago was randomly chosen from about 39 million applicants to win the 2005 Home and Garden Television Dream Home on the banks of Lake Tyler, he thought he could pay the high property and gift taxes with the help of loans and a group of investors.
> 
> ...


Read entire article at:

http://www.chicagotribune.com/news/custom/newsroom/chi-060210dreamhome-cnd,1,2388307.story


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## vertigo235 (Oct 27, 2000)

Oh man I feel so sorry for them!


I wish I had these types of problems...


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## jsmeeker (Apr 2, 2001)

vertigo235 said:


> Oh man I feel so sorry for them!
> 
> I wish I had these types of problems...


why would you want to owe $800,000 in taxes and have to take out a LOAN in an attempt to pay it?


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## PJO1966 (Mar 5, 2002)

jsmeeker said:


> why would you want to owe $800,000 in taxes and have to take out a LOAN in an attempt to pay it?


No kidding... if I won that thing it would be on the market immediately. Then I would buy something a little more manageable in an area I actually chose to live in.


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## Idearat (Nov 26, 2000)

I don't know the details about how HGTV picks or awards the Dream Home, but if it's something that 7 out of 9 people sell immediately, it's not really a dream home. It's more of a "big prize you have to do lots of paperwork and pay realtors to get your money".

If the dream homes are usually more than the winners can even afford the taxes on then it's a shame. Maybe it would ding HGTV too much, but perhaps another option would be that instead of giving them the homes they rent them to the winners at an amount equal to the property taxes.

Wouldn't it be nice if someone won a dream home and could actually afford to live in it?

That said, a 5,700 sqft house wouldn't actually be my dream home, just a big house.


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## Graymalkin (Mar 20, 2001)

This is why I'll never enter contests or sweepstakes where a cash option isn't available.


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## vertigo235 (Oct 27, 2000)

jsmeeker said:


> why would you want to owe $800,000 in taxes and have to take out a LOAN in an attempt to pay it?


The solution is simple for me, sell it immediately, I don't have to get a premium for it because it's all FREE MONEY. Then I would go buy a different house, or heck, just pay for the one I have.

Like I said, I wouldn't be upset if I had this problem.


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## EchoBravo (Apr 20, 2002)

I looooooooves me some HGTV.

The show "Dream Home" has always bugged me though. They had a show called "Dream _House_" for a couple of seasons which was different. I always wondered who at a channel (it's not really a network) would greenlight shows with such similar names and totally different premeses.

I can also never get past the location of the alleged dream homes. My dream home wouldn't be within 1,000 miles of Texas and probably wouldn't involve a boat slip. That show's just not for me.

Great channel though.


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## jimmymac (Nov 6, 2002)

I enter every year even though most of them are no where I'd ever want to live. If by some miracle I ever won, I'd put the place up for sale as fast as I could because it's pretty clear that most people couldn't afford to keep the place.


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## appleye1 (Jan 26, 2002)

EchoBravo said:


> I looooooooves me some HGTV.
> 
> The show "Dream Home" has always bugged me though. They had a show called "Dream _House_" for a couple of seasons which was different. I always wondered who at a channel (it's not really a network) would greenlight shows with such similar names and totally different premeses.


And A&E had a show called "House of Dreams" back in 2003. Do you remember that one? George Wendt ("Norm") was the host. Cheesy reality show, but I kind of enjoyed it. It was like "This Old House" meets "Survivor". I wish it had lasted more than one season.


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## SteveInNC (Jun 23, 2005)

The current home is on Lake Lure in the mountains of NC. I grew up in Asheville, which is about 30 minutes away from there. It's a beautiful area.

http://www.exploreasheville.com/

If you ever saw Last of the Mohicans, that was filmed right around and in the area. Asheville is also where the Biltmore House is located.

http://www.biltmore.com/

I remember hearing that for the prize this year, a loan company (sponsor) is throwing in some cash to help defray the taxes.

Like many of you, I'd be inclined to sell immediately and put the funds to a more realistic use. A 5000+ square foot vacation home is a little outside of my lifestyle , although I'd sure stay there a week or two after winning, just because...

re: taxes, the Feds will normally work out payment plans for people that suddenly discover that they owe too much tax. I'm not sure that carries over to something this large, but if so, the payments would probably be roughly similar to a normal mortgage. Another option would be to take out an equity loan on the home and use that to pay the taxes, then you get to deduct the interest expense as a mortgage...


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## Hansky (Nov 17, 2005)

SteveInNC said:


> The current home is on Lake Lure in the mountains of NC. I grew up in Asheville, which is about 30 minutes away from there. It's a beautiful area.
> 
> http://www.exploreasheville.com/
> 
> If you ever saw Last of the Mohicans, that was filmed right around and in the area. Asheville is also where the Biltmore House is located.


Dirty Dancing was also filmed, in part, in and around Lake Lure.


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## Martha (Oct 6, 2002)

We vacationed at Lake Lure this past fall - it is gorgeous! We've entered this contest multiple times. Hubby and I talked about what we would do if we won it - we're only a couple hours away from there!

But yeah, we'd sell it too, pay off our current house, fully fund kids college, and still have plenty left over!


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## MickeS (Dec 26, 2002)

That article is a bit confusing. Is it the property tax, or the tax for winning the house they can't afford? According to the text, it seems to be the property tax ($38k/year), but that has nothingto do with the $800k in taxes.

These things are not hard to figure out before you enter the drawing.


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## Kingfish (Dec 14, 2005)

I wonder how people with average incomes are able to pay the property taxes, etc. and keep the Extreme Makeover home whereas the HGTV winner can't afford to.  

Is ABC paying the property taxes year after year for Extreme Makeover winners?


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## jasong2001 (Sep 3, 2005)

Kingfish said:


> I wonder how people with average incomes are able to pay the property taxes, etc. and keep the Extreme Makeover home whereas the HGTV winner can't afford to.
> 
> Is ABC paying the property taxes year after year for Extreme Makeover winners?


With ABC they found a loop hole in Tax law, something about not having to pay tax on rental income. Sooo..... ABC pays RENT in the amount of the total cost of the upgrades house spread out over the week (7 days) ie 50,000 a day. So the house is payment for renting the property, but the catch here is the law also says that you can't rent your property for more than market value... its a scam really and if the IRS wanted to they could go after those home owners for taxes.

With HGTV I think you have to pay taxes on every dime you get including the LendingTree Home Loan of 200,000 so that doesn't help.. this all adds up to that 800,000 tax bill. Dream home is just a giant pain in the butt really, the only people who make out in that deal are the advertisers.


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## Animgif (Jan 4, 2002)

jasong2001 said:


> With ABC they found a loop hole in Tax law, something about not having to pay tax on rental income. Sooo..... ABC pays RENT in the amount of the total cost of the upgrades house spread out over the week (7 days) ie 50,000 a day. So the house is payment for renting the property, but the catch here is the law also says that you can't rent your property for more than market value... its a scam really and if the IRS wanted to they could go after those home owners for taxes.


I'm not a tax lawyer (or a lawyer) but if that's the problem, then why don't they just rent it for X number of months/years/whatever for the total of the tax amount and pay it upfront? I have paid my rent in 6-mo installments before (yes, I know...it's bad...interest, blah), why couldn't they do that if it was actually in violation of the Code?


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## Hansky (Nov 17, 2005)

Animgif said:


> I'm not a tax lawyer (or a lawyer) but if that's the problem, then why don't they just rent it for X number of months/years/whatever for the total of the tax amount and pay it upfront? I have paid my rent in 6-mo installments before (yes, I know...it's bad...interest, blah), why couldn't they do that if it was actually in violation of the Code?


Why not say the improvements are worth $1295.00? Or transfer the home into a non-profit corporation and call it a home for battered wives? Ot a thousand other things that are also known as felonies?

A legitimate argument under the Code as written is one thing. Avoiding taxes by outright lying tends to lead to penalties or prosecution. The IRS looks at the true substance of the situation not the label. In the case of this show, it isn't like they have to do much investigation. In the end, it is the homeowner who signs the income tax returns under penalty of perjury, and the homeowners who will pay the taxes, penalties and interest.

In this case, the producers may not be far removed from the likes of Irwin Schiff and the other scammers out there who convince people to not pay taxes through various ridiculous arguments. They sell books, get paid for "advice," and the gullible person who falls for it loses everything and/or serves time.


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## Turtleboy (Mar 24, 2001)

Animgif said:


> I'm not a tax lawyer (or a lawyer) but if that's the problem, then why don't they just rent it for X number of months/years/whatever for the total of the tax amount and pay it upfront? I have paid my rent in 6-mo installments before (yes, I know...it's bad...interest, blah), why couldn't they do that if it was actually in violation of the Code?


I'm both. 

Rental income is income, but there is a safe harbor for renting out your princpal residence for less than 15 days in a tax year.

Edit: Oh, and there are no "gift taxes," as mentioned in the orignal article. There is income tax.


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## pmyers (Jan 4, 2001)

Idearat said:


> I don't know the details about how HGTV picks or awards the Dream Home, but if it's something that 7 out of 9 people sell immediately, it's not really a dream home. It's more of a "big prize you have to do lots of paperwork and pay realtors to get your money"...


I agree. Obviously something is flawed with HGTV's plan if 7 out of 9 people have to sell it. ABC has come up with an answer for their show.


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## IJustLikeTivo (Oct 3, 2001)

jasong2001 said:


> With ABC they found a loop hole in Tax law, something about not having to pay tax on rental income. Sooo..... ABC pays RENT in the amount of the total cost of the upgrades house spread out over the week (7 days) ie 50,000 a day. So the house is payment for renting the property, but the catch here is the law also says that you can't rent your property for more than market value... its a scam really and if the IRS wanted to they could go after those home owners for taxes.
> 
> With HGTV I think you have to pay taxes on every dime you get including the LendingTree Home Loan of 200,000 so that doesn't help.. this all adds up to that 800,000 tax bill. Dream home is just a giant pain in the butt really, the only people who make out in that deal are the advertisers.


Well, that's now what they were doing. The loophole says that any improvements made by the tenant while the house is rented accrue to the owner. By renting the house for fair market value and then fixing it, the improvement fell under that clause.

Now that they tear down every house, I have no idea how they handle the issue. But pretty clearly tearing down the house and replacing it probably doesn't fall under the "improvement" catagory.


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## durl (Dec 1, 2005)

The winners should be happy to pay their fair share of taxes. (SARCASM)

I wish things like this would make people think more about our tax laws.


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## Turtleboy (Mar 24, 2001)

durl said:


> The winners should be happy to pay their fair share of taxes. (SARCASM)
> 
> I wish things like this would make people think more about our tax laws.


A prize is income. What should we think about?

Should we exclude contests, prizes, lotteries, from taxable income?


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## MassD (Sep 19, 2002)

On this type of prize and magnitude... it's pretty crappy to leave the winner holding the tax bill. HGTV should pick up the tab on this one.


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## Jonathan_S (Oct 23, 2001)

MassD said:


> On this type of prize and magnitude... it's pretty crappy to leave the winner holding the tax bill. HGTV should pick up the tab on this one.


Possible, but annoying to do. Every dollar HGTV gives the winner to cover the tax increases the tax the winner owes. 
(Of course since it increases it by less that 1 dollar it still helps, and it is still easy to calculate how much cash you have to give so that it can cover the tax on the house + the tax on the cash)


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## DevdogAZ (Apr 16, 2003)

IJustLikeTivo said:


> Well, that's now what they were doing. The loophole says that any improvements made by the tenant while the house is rented accrue to the owner. By renting the house for fair market value and then fixing it, the improvement fell under that clause.
> 
> Now that they tear down every house, I have no idea how they handle the issue. But pretty clearly tearing down the house and replacing it probably doesn't fall under the "improvement" catagory.


Except that the valuation is based simply on the "property." The state taxing agency and the IRS don't care what the improvements are, or if they were added to an existing structure or built from scratch. The simple fact is that the owner rented out the property and came home to the same property, although the improvements on the property have changed. Therefore, the valuation will change, and the increase in value will be imputed income, but most of the time these homes are getting paid off, so the people could theoretically take their previous mortgage money and pay it towards the increased taxes.


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## spartanstew (Feb 24, 2002)

Jonathan_S said:


> Possible, but annoying to do. Every dollar HGTV gives the winner to cover the tax increases the tax the winner owes.
> (Of course since it increases it by less that 1 dollar it still helps, and it is still easy to calculate how much cash you have to give so that it can cover the tax on the house + the tax on the cash)


True, but I'd think instead of giving away a $2M home, they could give away a $1M home and $1M in cash.

The winner could pay the ~ $700,000 in taxes and still have a dream home and ~$300,000 in cash. Everybody wins.


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## MassD (Sep 19, 2002)

Jonathan_S said:


> Possible, but annoying to do. Every dollar HGTV gives the winner to cover the tax increases the tax the winner owes.


Sure, it increases the price that HGTV pays, but I think it's the only fair thing to do. The vast majority of the people winning these home makeover things aren't wealthy.. in some cases, they are pretty banged up. There are a very small number of people in this country who could absorb that kind of debt and stay in the house...

And anyone who COULD afford that kind of debt wouldn't need to be given the dream home in the first place... they could have afforded it anyhow.

This is a crappy deal... basically the winner gets to live in their dream home for a short time, until they sell it to pay the taxes.

Yeah, in the end they still get a rather large chunk of change...


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## Turtleboy (Mar 24, 2001)

Jonathan_S said:


> Possible, but annoying to do. Every dollar HGTV gives the winner to cover the tax increases the tax the winner owes.
> (Of course since it increases it by less that 1 dollar it still helps, and it is still easy to calculate how much cash you have to give so that it can cover the tax on the house + the tax on the cash)


You are correct that every dollar that HGTC gives the winner to cover the taxes is also taxable income, and increases the tax the winner owes. You are also correct in reocgnizing that since we don't have a 100% income tax rate, it increases the amount of taxed owed by less than a dollar.

If HGTV were to cover the entire amount, the gross up formula is:

Gross income = 1/(1 - (marginal rate of tax)).


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## cowboys2002 (Jun 15, 2001)

Wow..what a thread...

FWIW, the $200,000 from Lending Tree is cash, not a loan. In the early years of this contest, cash was not included. When Many winners started selling the homes, the cash component was added maybe 2-3 years ago.

Can't recall the total value of the prize, but as many have said the total amount including the cash is taxable. 

The person also wins a SUV. between selling the SUV, the $200,000 cash and selling an existing home (if you have one), a middle income person MIGHT be able to keep the house. I would at least stay in it for a month or so before making a decision.


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## Jonathan_S (Oct 23, 2001)

Turtleboy said:


> You are correct that every dollar that HGTC gives the winner to cover the taxes is also taxable income, and increases the tax the winner owes. You are also correct in reocgnizing that since we don't have a 100% income tax rate, it increases the amount of taxed owed by less than a dollar.
> 
> If HGTV were to cover the entire amount, the gross up formula is:
> 
> Gross income = 1/(1 - (marginal rate of tax)).


Yep. That gets you past the income tax, of course then there is the yearly property tax 

Someone quoted $38k/year just for property tax. So even if the income tax was covered I'd still have to sell it just because I couldn't afford the property tax; and many of the winners could well be in the same situation...


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## NJChris (May 11, 2001)

This reminds me of when Aunt Bee won all those appliances on a game show and she had to get rid of most of them to pay the taxes.


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## MassD (Sep 19, 2002)

Jonathan_S said:


> Someone quoted $38k/year just for property tax.


Assuming an assessed value of $2M.... in my town, a yearly tax bill would be about $21,600 a year... close to $1,800 a month. That's essentially what someone would pay, in both mortgage and property taxes, for a $220,000 (+/-) mortgage.

But it's not the yearly taxes... it's that massive income tax bomb that drops when you take possession of the house. THAT'S what blows.

In any case, the winner is MUCH better off selling the house, then using the profits to buy something more modest (in the $500k range)... put enough of the winnings aside in escrow to deal with the mortgage.. then use the mortgage as a tax shelter, using the any tax refunds from the interest to pay the property taxes. You end up living in sweet house without much cost and you still end up with a few hundred thou in the bank.

Let's see.. keep the dream home and have to deal with what is effectively a $2,000 a month payment... or sell it and get a $500, pay a fraction of that and end up with a lot more cash left over??? Gee...


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## Turtleboy (Mar 24, 2001)

Of course, if the property appreciated between the time the winner "won" it and the time he sold it, there would be capital gains taxes too.


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## MassD (Sep 19, 2002)

Turtleboy said:


> Of course, if the property appreciated between the time the winner "won" it and the time he sold it, there would be capital gains taxes too.


Well... high end home sales are tanking right now... so I don't think there would be much worry of that.


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## Jebberwocky! (Apr 16, 2005)

Turtleboy said:


> Of course, if the property appreciated between the time the winner "won" it and the time he sold it, there would be capital gains taxes too.


not likely as the sale would happen in a time frame that wouldn't qualify for capital gains treatment (which would be preferrable over ordinary gains)


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## etexlady (Jun 23, 2002)

Sorry, I didn't read the linked article but I live in the town where the Dream Home is located and have read plenty enough about it. This "winner" doesn't have many options other than to sell it. The house was build in a gated, very upscale lake community with many restrictions. The winner wanted to make some money by renting the opulent boat house but rentals are not permitted in the area. Next, he tried to offer the house as a bed and breakfast but again community restrictions prevented that. He is pursuing licensure as a foster parent but the little amount of money he gets from that sure will not pay the tax bill and I'm sure his neighbors might have something to say about it as well. He put the property on the market just a month or so ago saying he had to sell it by April 15th.


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## MassD (Sep 19, 2002)

That stinks... the time crunch will eat into his asking price.


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## Turtleboy (Mar 24, 2001)

Jebberwocky! said:


> not likely as the sale would happen in a time frame that wouldn't qualify for capital gains treatment (which would be preferrable over ordinary gains)


Still a capital gain. Just a short term gain (which you are right, and is taxed as ordinary income) over a long term gain.

But if the house was sold shortly after coming into the possession of the winner, the winner probably has a valid argument that the sale price = the income value of the house when he won it.


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## durl (Dec 1, 2005)

Turtleboy said:


> A prize is income. What should we think about?
> 
> Should we exclude contests, prizes, lotteries, from taxable income?


I'm not saying to exclude all prize winnings from income. I just want people to think about how much the government takes from them.

Here in Tennessee, we (the voters) were able to stop a state income tax. So instead, the legislature raised sales tax rates again. There's a state rate and counties can add their rate to it as well, so I'll pay 9.75% sales tax on most items. Some would say that's incredibly high...and they'd be right. But I believe it's a better way for people to see how much of their spending power is taken from them by government. Money taken by the government means less spending power.


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## Jebberwocky! (Apr 16, 2005)

Turtleboy said:


> Still a capital gain. Just a short term gain (which you are right, and is taxed as ordinary income) over a long term gain.
> 
> But if the house was sold shortly after coming into the possession of the winner, the winner probably has a valid argument that the sale price = the income value of the house when he won it.


Well if you're going to get technical - i've got nothing to dispute the truth (capital = real estate duh). 

And I agree that if the house sold shortly after it was won the value would be the ales price.

Wonder what they use to determine the value for taxes if you were to keep it? Appraisal - cost to construct or ??


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## jsmeeker (Apr 2, 2001)

MassD said:


> Assuming an assessed value of $2M.... in my town, a yearly tax bill would be about $21,600 a year... close to $1,800 a month. That's essentially what someone would pay, in both mortgage and property taxes, for a $220,000 (+/-) mortgage.
> 
> *But it's not the yearly taxes... * it's that massive income tax bomb that drops when you take possession of the house. THAT'S what blows.


Well, maybe not for you, but that yearly tax bill would be for me. It would be impossible for me to pay for mortages and taxes on an approx. $220,000 home. Even if the income tax bomb were worked out, I still could not keep that $2M house.

The whole thing is really crazy. The contest prize can really only be truly enjoyed by someone who would be able to build/buy a house like that on their own.


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## the new guy (Oct 29, 2004)

I definitely agree that if I had won the house, I would promptly sell it, but I would be driving home with a truckload of nice furniture and electronics...!  

Maybe instead of trying to go bigger and more extravagant every year, they should build a house the winner could actually afford to keep. Though I guess it really is a dream home in one respect: sometime you will have to wake up and realize it was only a dream...

Tim


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## DianaMo (Oct 22, 2003)

the new guy said:


> Maybe instead of trying to go bigger and more extravagant every year, they should build a house the winner could actually afford to keep. Though I guess it really is a dream home in one respect: sometime you will have to wake up and realize it was only a dream...
> 
> Tim


You mean like a dream home that isn't a nightmare! Kewl idea.

I'd like to see a home with lots of hidden storage spaces, open floor plan, lots of daylight, a swim spa and lots of great ideas for entertaining.


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## BubbaT (Jan 26, 2010)

How about this. Dream home, all taxes paid, and a cool 2M to cover living expenses and college tuition.

That should give you enough to get a 4 yr degree at a state school so you can get a better paying job and afford the house.


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## DevdogAZ (Apr 16, 2003)

Yet another bizarre first post thread bump.


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## marksman (Mar 4, 2002)

DevdogAZ said:


> Yet another bizarre first post thread bump.


What in the wide world of sports is going on around here.

edit: Do you need a certain post count to send PMs here?

Pretty common on lots of forum now people spamming links in pms that install viruses and such. I get one notification every day from an old forum I used to use with a new pm with a new link to a virus.

So maybe that is the game here. I don't know the initial rules on sending pms here though.


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## DevdogAZ (Apr 16, 2003)

But even if that's the case, why bump a nearly four-year-old thread rather than just responding to a current thread? I'd think people would take less notice of a newbie just responding to a typical active thread than one bumping an old thread like this.


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## marksman (Mar 4, 2002)

True... but I think there is some level of search engine mining to find such stuff.. so I am not sure.

May also to be to build up signature links.

You are right though.. doesn't make sense to bump these old threads.

Can't be a coincidence though.


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