question.jpgIn Federal Income Tax

I won a prize (such as a car). How is it taxed?

Prizes and awards are taxed at fair market value, i.e. taxed at the amount of money for which you could sell the prize. If you win a car, for instance, and you could sell it for $35,000, then you add $35,000 to your income. However, certain prizes and awards are not taxed. To be excepted for normal income tax, then the prize or award must meet all four of the following tests: 1) It is in recognition of religious, charitable, scientific, educational, artistic, literary, or scientific achievement; 2) you were selected without any action on your part; 3) you assign the award to a government unit or tax-exempt organization; and 4) you do not have to perform a service to receive the prize or award.