Real estate decisions after winning the lottery

Should you pay off your mortgage?

The financial math is straightforward. Paying off your mortgage gives you a guaranteed, risk-free return equal to your interest rate. If your mortgage rate is 6.5%, paying it off is equivalent to earning 6.5% after tax — with no credit risk, no volatility, and no year-to-year guessing.

The 30-year fixed mortgage rate as of June 2026 averages approximately 6.6% (Freddie Mac Primary Mortgage Market Survey, June 19, 2026).¹ At that rate, paying off the mortgage provides a guaranteed return that is competitive with long-term bond yields and attractive on a risk-adjusted basis.

Two caveats:

• Tax deductibility matters less than it used to. Under current law, mortgage interest is only deductible on the first $750,000 of principal (for mortgages originated after December 15, 2017).² Many lottery winners, facing an enormous income spike in the win year, will be far over the SALT and itemized deduction thresholds anyway — so the interest deduction may provide little benefit in that year specifically.
• Proportion of total assets matters. If you net $8M after taxes and your mortgage balance is $400K, paying it off is a rounding error — the decision has minimal impact on your overall financial outcome. If the mortgage is $2M of a $5M windfall, that's a more material choice that belongs in your written investment plan.

Buying a new home after a lottery win

The impulse to upgrade housing is one of the most common early decisions lottery winners make — and one of the most frequently regretted. That doesn't mean it's wrong. It means it deserves deliberate analysis before the wire transfer.

What a home purchase actually costs

A home is a large, illiquid, non-income-producing asset. A $3M home:

• Removes $3M from investable assets. At a 5% withdrawal rate, that's $150,000/year in foregone annual income.
• Carries ongoing costs: property taxes typically 0.8–2% of assessed value per year ($24K–$60K/year), homeowner's insurance, maintenance, and potential HOA fees.
• Is difficult to liquidate quickly. Real estate transactions typically take 30–90 days and carry 5–6% in selling costs.

Cash purchase vs. financing a new home

Paying cash removes the mortgage interest deduction entirely. For a lottery winner in the 37% federal bracket in the win year, that deduction was already limited — the mortgage interest deduction caps at $750,000 of principal,² and your tax situation in the win year is sufficiently complex that your CPA needs to model whether itemizing even benefits you.

Taking out a new mortgage when you don't need one is unusual but occasionally advisable: if your expected investment returns exceed your mortgage rate, leverage amplifies returns. But this calculation assumes you will actually invest the retained cash rather than spend it, and it ignores the risk that market returns disappoint in the early years of your investment plan.

Capital gains on a future home sale

If you buy a primary home with lottery proceeds and sell it later, you can exclude up to $250,000 in gains ($500,000 for married couples filing jointly) from federal capital gains tax — but only if you have owned and used the home as your primary residence for at least two of the five years before the sale.³ A home purchased and sold within two years gets no exclusion. This two-year clock is worth tracking.

SALT deduction in the win year and beyond

Property taxes are deductible as part of the state and local tax (SALT) deduction, which is capped at $40,400 for 2026 (raised from $10,000 by the One Big Beautiful Bill Act).⁴ However, the cap phases out by 30% of modified AGI above $500,500. A lottery winner receiving even a modest jackpot of $1M will have MAGI well above $635,000 in the win year, meaning their effective SALT deduction is likely zero. Property taxes and state income taxes generate no federal deduction in that year. In subsequent years, if income normalizes, the SALT deduction becomes available again.

Investment real estate after a large win

Rental properties are appealing to lottery winners for understandable reasons: tangible, income-generating, familiar. But they introduce concentration risk and management complexity that diversified portfolios do not.

The concentration problem

If you receive a $5M after-tax lump sum and use $2M of it to buy two rental properties, you now have 40% of your liquid net worth in illiquid, geographically concentrated assets managed by a single owner. Most fee-only advisors recommend keeping real estate to 10–20% of a diversified portfolio — not because real estate is a bad investment, but because over-concentration in any single asset class creates unnecessary risk.

Ongoing management requirements

Direct rental real estate requires time: tenant screening, maintenance coordination, lease renewals, and vacancy periods. For a lottery winner who is simultaneously navigating tax planning, investment policy, estate planning, and family governance, adding property management in the first year creates real bandwidth problems.

Tax mechanics of rental property

• Depreciation deduction. Residential rental property is depreciated over 27.5 years, generating an annual deduction of ~3.6% of the building value (not land). On a $500K building component, that's ~$18K/year. This is a genuine cash flow benefit, but it creates depreciation recapture at sale (taxed at 25%).
• Passive activity loss rules. Rental losses above $25,000/year are generally "passive" and can only be deducted against passive income unless you qualify as a real estate professional (a high bar). A lottery winner with large investment income will likely be able to use passive losses against passive gains, but not against ordinary income.
• 1031 exchange. When you eventually sell investment property, a 1031 exchange allows you to defer capital gains taxes by reinvesting proceeds into like-kind property. This is a legitimate long-term strategy but requires precise timing and execution — something best handled with an experienced tax advisor.

REITs as an alternative

Real estate investment trusts (REITs) provide real estate exposure without the management burden, illiquidity, or concentration risk of direct ownership. They trade on public exchanges, distribute dividends, and can be sold in days rather than months. For a lottery winner who wants real estate in their portfolio but recognizes the bandwidth problem of being a landlord in year one of sudden wealth, REITs are worth modeling in the investment policy statement.

Moving to a no-tax state: does the timing work?

Ten states do not tax lottery winnings: California, Florida, Texas, Wyoming, Washington, Tennessee, South Dakota, New Hampshire, Nevada, and Alaska. If you live in New York or New Jersey — which impose rates of 10.9% and 10.75% respectively⁵ — the tax difference on a large jackpot is significant.

Whether you can avoid that tax by moving before claiming depends on timing and intent:

• Some states tax nonresident purchasers. Arizona and Maryland withhold state tax from all winners regardless of where they live. A handful of other states claim source-state taxation on tickets purchased within their borders. Your CPA needs to check the specific rules for the state where you bought the ticket.
• Domicile vs. mailing address. States — especially New York — distinguish between legal domicile (your permanent home) and a temporary address change. Moving an address without changing your primary home, workplace, social ties, and documentation is not sufficient to change domicile. Courts have upheld tax claims against winners who changed addresses but maintained their real lives in a high-tax state.
• Timing scrutiny. Tax authorities are increasingly aggressive about auditing winners who move between winning and claiming. A well-documented, genuine change of domicile is defensible; a rushed move of convenience is not. The IRS and state revenue agencies have access to lottery claim records, and a large claim from a new resident draws attention.
• The calculation still requires CPA guidance. Source-state rules, domicile definitions, and withholding mechanics vary enough by state that a general rule cannot substitute for jurisdiction-specific advice from a tax attorney or CPA familiar with your specific states.

Real estate decisions: a summary table

Where a financial advisor fits in real estate decisions

A fee-only financial advisor doesn't replace your real estate attorney, CPA, or lender. But they coordinate the analysis so you see the whole picture: how a $2M home purchase affects your withdrawal sustainability, how a rental property fits (or doesn't fit) your overall asset allocation, and whether paying off the mortgage at 6.6% makes more sense than adding to your bond allocation.

The advisors in this network specialize in sudden-wealth clients. They've seen the full range of real estate decisions lottery winners make in year one — and the ones they regret. That perspective matters when you're making a decision that takes decades to unwind.

Related guides: How to invest lottery winnings · Month-by-month first-year timeline · Lottery winner financial mistakes · Estate planning for lottery winners

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