Sacramento couple hit with $400,000 in gift taxes for house in Georgia

Kathi Nakao has spent the past three years transforming her 24-year-old tract house in south Sacramento into a Southern beach cottage ? minus the waves.

It?s a far cry from the blue waters and spreading magnolias of coastal St. Mary?s, Ga., where for 18 dreamy months, she held title to a 3,000-square-foot vacation home complete with four-story view tower and its own screened-in boat slip.

Nakao and husband Donald, both retired state employees, won the completely furnished house and a car in the HGTV Dream Home Giveaway in 2004.

But the hard reality is that the couple simply couldn?t afford the $400,000 plus in gift taxes owed on their winnings. With advice from their accountant, the Nakaos temporarily tapped into some of their resources to buy time and enjoy the house for as long as they could. Then they put it up for sale.

That was the bad news.

The good news is that they were able to sell the property for well above the $1.2 million value given by HGTV. And with their winnings, they were able to remodel their own home, incorporating many of the architectural and design details from their Dream Home.

A retired legislative assistant under seven governors with years of hard budgetary experience, Nakao realized within a day of receiving notice of her winning that she wouldn?t be able to keep it. A representative with HGTV, however, counseled her to simply enjoy the moment. And she did.

?I enjoyed every minute of it,? Nakao said. ?It was my lottery, my chance. I would hope everyone in the world would have a chance to feel like I did.?

The Nakaos rejected the idea of selling their existing home to pay the taxes in favor of living in Georgia.

?We could have uprooted ourselves. However, our family, our grown children, our parents, aunts and uncles and cousins and friends are here,? she said.

None of the previous winners are currently living in their Dream Homes, although a few, like the Nakaos, enjoyed them for a while.

Don and Shelly Cruz, who won the 2005 Dream Home in Tyler, Texas, moved in and thought they could keep it by selling a second cottage included in the prize package or turning it into a B&B. But they were thwarted by zoning regulations.

Tina Carlson of Carlsbad kept her Beaufort, S.C., Dream Home as a vacation retreat for seven years, according to HGTV spokeswoman Emily Yarborough.

But most winners, impeded by gift and property taxes, upkeep and geographical distance, have sold their homes to finance another dream.

In the case of the Nakaos, it enabled them to turn their Sacramento home into a mini seaside cottage, imitating many of the colors and design details. They kept some of the furnishings and accessories, including a dresser that looked like a stack of suitcases, a desk lamp, two large candle vases and a big red star over the fireplace that had caught Kathi?s eye when she watched the Dream Home unveiled on TV. Don kept the GMC Envoy.

?It also enabled us to do more for our parents and our children and to be more charitable,? she said.

Kathi has great memories, however, of her multiple Georgia visits.

?The people were gracious and wonderful out there,? she said, adding with a laugh, ?But I just don?t like the critters.?

She knew she wasn?t in California anymore when she sat down on her porch to enjoy a cup of coffee, looked out and saw a 10-foot alligator in the yard.

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