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Understanding Florida Real Estate Taxes With Florida's Amendment 1

Jul 11, 2008
Florida's real estate tax laws can be tricky to understand. There are several factors which affect the size of your property tax bill, so if you're buying property in Florida or are relocating, it's important to understand how taxes are calculated.

Property values are in constant flux just as the real estate market is, so getting an accurate, current assessment is important. The assessed value of the property you buy may change dramatically when it changes hands, so it's good to be aware of the factors that might influence how much tax you pay.

As well as market rates your real estate tax bill will also depend on the tax rate for different local government bodies. The property you buy will be subject to taxes from several different bodies, including county and city government, the school board, hospital district, and water district. There may be additional taxes if you live in a masterplanned community.

On the other side of the coin, homestead exemptions and the "Save our Homes" amendment help limit the amount of your property tax bill.

County Taxes

The amount you pay in county property taxes will, of course, vary depending on the value of your property. However, they'll also vary depending on the tax rate in your county, and where in the county you live. This is because within a county, some regions are incorporated and some are unincorporated, and unincorporated regions tend to have lower property taxes. If you live in Temple Terrace, some areas of New Tampa or the City of Tampa, for example, you'll likely be paying more in property taxes than someone living in Lutz or some portions of New Tampa, as the former locations are incorporated and the latter are not. Unincorporated areas generally are lower because they do not have "city" taxes.

Community Development District Tax

People living in a Florida masterplanned community or community development district will likely have additional taxes to pay. These extra taxes are what enable the developers of these communities to add extra amenities to enhance the lives of residents. By sharing the cost of community and land development among residents, additional facilities such as recreation centers, parks, walking trails, and sports facilities can be added.

Depending on the community, the tax may have two separate parts. One is a fixed amount that is payable for a fixed amount of time (usually no more than twenty years) - the bond portion. The second amount can vary from year to year depending on the needs and budget of the community. If you're interested in relocating to one of these communities it's important to find out how much residents are expected to pay each year, as the total varies widely depending on the community, the different villages within the community and the types of facilities and services the master planned community provides as a whole.

Note that the responsibility for paying these taxes is tied to the property, not to the owner. If the property changes hands, payment of community fees and taxes becomes the responsibility of the new owner. An owner does have to option to pay off the bond portion of the CDD for their property, thus reducing the amount owed yearly to only include the working capital needed to maintain the community.

Property Tax Homestead Exemption

Under the homestead exemption, all legal residents of Florida can deduct $25,000 from the assessed value of their primary residence. This essentially reduces the taxable value of the property, and reduces how much eligible Florida residents pay in property tax. Certain groups of homeowners, such as senior citizens, veterans, and the blind, may qualify for other exemptions.

The $25,000 homestead exemption is not granted automatically, however. To be eligible in any given year you must take possession of the homestead by December 31, and then apply for exemption no later than March 31 of the next year.

Since January 9, 2008, eligible Florida homeowners can gain a further $25,000 exemption under Amendment 1. This exemption is received automatically by any homeowner who applies and is approved for the original homestead exemption.

The second exemption is calculated as follows:

* The first $25,000 value of the home is the original exemption.

* The second $25,000 is fully taxable. This is necessary to allow Florida towns and cities where assessed property values are low to continue collecting the revenue they need to run local government.

* The third $25,000 is the new Amendment 1 exemption. It is exempt from all taxes except for school tax. This allows schools to continue receiving the funding they need (if this third portion was totally exempt, schools wouldn't receive enough funding for their schools).

The "Save Our Homes" Amendment

The Save our Homes (SOH) amendment prevents annual property assessments increasing more than 3% or the percentage increase in the Consumer Price Index (whichever is lower). This guarantees any homeowner who receives a homestead exemption that the assessed (taxable) value of their property will not increase more than 3% per year.

SOH protects existing Florida homeowners, but if you're buying Florida property and you are not a Florida resident and it is not your primary residence, SOH won't apply to your purchase. The assessed value cap is lifted automatically when the property changes hands. It is important for new home buyers to rely on the current market value and not on the previous owners tax assessment as it is likely that the home will have an artificially low assessed value, especially if it's been owned by the same person for a number of years.

Once you buy a home, you can apply for homestead exemption, and receive automatic SOH protection once the exemption is approved for the next tax year.

What does that mean? If you buy your home prior to December 31, 2008, you will have the benefit of whatever the prior homestead status is for your bill that tax year. Once the new year begins and providing you have applied by March 31, your new Homestead exemptions will be reflected in the following November's 2009 tax bill. Remember taxes are paid in arrears.

"Save Our Homes" Portability

Amendment 1 has also changed the way SOH works. Under Amendment 1, SOH protection now has "portability," meaning you can transfer a portion of your SOH benefit to a new homestead, if you meet the qualifying criteria.

Under the old pre-Amendment 1 system, a homeowner who had lived in the same homestead for several years had a substantial property tax benefit, as their home's assessed value was capped. However, while they would enjoy lower property taxes, they were also more or less trapped in that home, as moving to a new homestead would mean a sharp increase in property taxes (as they would not be protected by SOH).

Amendment 1 has changed that by allowing Florida homeowners who receive SOH protection to transfer that protection to a new homestead. They must, however, apply for SOH within two years of purchasing the new property to be eligible to transfer the accumulated tax benefit to the new home. For example, a homeowner who gave up their old homestead after January 1, 2007, would have to claim for their new homestead by March 3, 2008 to be eligible for SOH portability.

The protection isn't limited only to people who purchase new property. A Florida homeowner with multiple properties can transfer homestead status and SOH protection from one property to the other. However, because these protections only apply to a primary residence, they must also be willing to change their primary residence. There are stiff penalties for claiming homestead status on a property that is not your primary residence.

To apply for SOH portability you must apply for a new homestead exemption and also make a separate application to transfer the SOH benefit to your new homestead. You'll need DR-501T and DR-501R application forms, which you can obtain from the Florida Department of Revenue web site and turn in to office of the county appraiser where your new homestead is located.

How much can you transfer? It depends on whether you're moving to a house of greater or lesser value than the house in which you currently live. If it a home of greater value, you can transfer up to $500,000 worth of SOH protection from your original homestead. If it's less in value, you can transfer up to 50% of the new property's value in SOH protection.

Stay with me here...

For example...

Your current homestead has a value of $300,000 and SOH exemption of $150,000.

If your new property has a value of $500,000 you'll receive portable benefits of $150,000.

If your new property is valued at $200,000 you'll receive $100,000 worth of protection (in this case 150,000 of 300,000 is 50% - so you would apply the 50% to the new property value to arrive at your dollar amount of reduction of assessed value).

Assessment Cap for Non-Homesteads

Under Amendment 1, there is now an assessment cap for non-homestead property. This applies a cap of 10% on the assessment of both residential and non-residential property.

As of January 1, 2008, all non-homestead property will be assessed at market value only. However, the assessed increase from year to year is capped at 10%. In addition, the assessed value of the property cannot exceed market value.

Essentially, this means the assessed value of non-homestead property will be equal to market value. If a non-homestead property is appraised at $350,000 in 2008, it will be tax assessed at $350,000. If the property is capped at 10% cap in 2009, its assessed value could not increase above $385,000, regardless of market performance.

Non-homestead property owners can apply for this assessment cap in 2009.

Tangible Personal Property Exemption

The fourth Amendment 1 change is a $25,000 tangible personal property exemption. To qualify, business owners must file a TPP return by April 1 in the year in which they wish to apply. If you file and your TPP is less than $25,000 in value, there's no need to file again unless your TPP value increases over that amount. Tangible personal property includes any owned and leased items used by a business.
About the Author
Calum MacKenzie is Broker/Owner of Real Living Southern Homes a leading Tampa real estate company serving the Wesley Chapel FL real estate and New Tampa FL real estate markets.
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