The Unexpected Tax Consequences of “Extreme Makeover: Home Edition”

Jennifer M. Nasner, The Unexpected Tax Consequences of “Extreme Makeover: Home Edition”, 40 Gonz. L. Rev. 481 (2005).

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Not many people argue with the idea of helping families in need. Most in today’s society have a soft spot for helping the less fortunate and wish they could do more to help others. This is where “Extreme Makeover: Home Edition” comes in. “Home Edition” is a reality television series that involves a “run-down house, a deserving family, several opinionated designers, [and] seven days.”

Home Edition seeks to differentiate itself from other home improvement shows by choosing families that “have fallen on tough times.” The crew sends the family on a seven-day all expense-paid vacation while it lavishly rebuilds the entire home, a process that would usually take more than four months.  The rebuilding process  includes every room, the exterior, and the landscaping and is made possible through the help of a team of eight designers, contractors, and several hundred workers.  Home Edition is able to supply the renovations because of the donations of material and labor. For instance, Sears, Roebuck and Co. pays more than $1 million for home products such as tools, appliances, and furnishings.
Recently, questions have arisen as to the income tax consequences of these massive home improvements. In response to the questions, Home Edition has responded by saying that the homeowners escape any federal taxation by entering into a lease. The television show claims that the $50,000 value of the appliances and other furnishings are nontaxable as rent because the lease durations are less than fifteen days.  Moreover, it asserts that the renovations are free from income taxation as lessee improvements. Skeptics say that this argument will not pass IRS scrutiny and the IRS has yet to comment on the issue. Only time will tell how the IRS will react to this use of the tax code….Read More

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