Never look a gift house in the mouth?

Think again.

People who've had their houses renovated on popular shows such as "Extreme Makeover: Home Edition" (search) have been finding themselves with a whole new set of problems -- tax problems.

Lucy Ali's small, two-story house in Ozone Park, New York, was renovated by "Extreme Makeover: Home Edition" for an episode that first aired last October and was repeated last Sunday.

According to city tax records, the Ali house was valued at $287,000 in 2004, before the "Home Edition" renovations, with property taxes of about $1,500.

Now that same house is valued at $412,000.

Sam Miller, assistant commissioner for the New York City Dept. of Finance, attributes the $125,000 market increase in the Ali house to the "Extreme Makeover" renovations.

"We can't predict what [the Alis'] taxes will be next year," Miller says. (The City Council hasn't set the tax rates for 2005 yet, he explains, but at the current rate, her bill would be nearly $2,200.)

"But renovations that add value to a home will likely increase the taxes because the home could fetch a higher price on the open market," he says.

That doesn't mean the families whose homes are renovated on TV are left high and dry.

Shows like "Extreme Makeover" are also finding innovative loopholes to help the families avoid a burdensome tax bill -- turning the renovation into a tax "gift," for example.

"In terms of the value of the house itself, we consulted with tax experts and learned that a homeowner can lease their property to the production company for 14 days for the purpose of the shoot," says David Goldberg, president of Endemol USA, which produces "Home Edition."

"So any improvements made to the home are exempt from federal and state taxes. It's a win-win situation for everybody."

The shows consult with the families beforehand -- letting them know what may be in store for them come tax time.

"We don't have a slew of disgruntled families or people being adversely affected by tax ramifications," Goldberg says. "It's all very clearly detailed [to the families] beforehand, not only in written contracts, but verbally. They're all aware of that.

"We want to make it a pretty minimal issue for them."

And, according to Variety, Rocket Science Laboratories, which produces Fox's "Renovate My Family," pays the families a lump sum to cover tax liabilities.

"My position is that we're dramatically improving people's homes and lives," Goldberg says, "and that a property tax increase is a small price to pay when you look at the upside of changing their lives."

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