Extreme Makeover Foreclosure & Tax Question

Even the incredibly lucky get greedy…

I wonder how income taxes work on this TV show. This family was essentially given a $450000 home plus $250000 in additional donations. This seems no different than the taxes due from winning a game show or contest prize. How would a family who couldn’t afford a new house in the first place, be able to pay income tax on $700000. Perhaps it’s treated as a gift tax to be paid by the contributor?

The show leases the property from the homeowner, and sends them on a vacation for a week or two. Per US tax law if a leaseholder makes any improvements to your real property (real estate) while it’s leased, any improvement is tax free to you the landlord/property owner. So that $450k house is 100% tax free. In regards to the $250k in additional donations directly to the family, AND if it’s $250k in cash, part of that would have to go to Uncle Sam. But if that $250k in “donations” is in the form of additional improvements to the property…it would be tax free too. You got to love tax loopholes!