Watch Out for Florida’s Homestead Exemption Traps
If you think you understand Florida’s Homestead Exemptions, better double check. Property sales and title changes can trigger unexpected and costly events.
PALM COAST, FL – November 6, 2015 – Not understanding Florida’s Homestead Exemption can be costly and confusing. But on a typical Palm Coast home, a Homestead Exemption will reduce the homeowner’s property tax bill by $849.41 (based on the 2015 millage rate and the Flagler Property Appraisers tax calculator).
If you recently arrived from someplace outside of Florida, it’s a pretty good bet that you don’t understand some important concepts that determine your property tax. Even if you are familiar with the concept of Homesteading from a jurisdiction outside of Florida, you probably don’t understand the Florida version. Even long-term Florida residents sometimes struggle with the details.
There are three important interrelated concepts to understand. Quotes below are taken from the Property Appraiser’s website www.FlaglerPA.com.
“Every person who on January 1 of the current year has legal title or beneficial title in equity to real property in this state and who in good faith makes the property his or her permanent residence or the permanent residence of another or others legally or naturally dependent upon him or her, qualifies for this exemption. You may apply in person at any time through the year, but the deadline is March 1 of the qualifying year.”
Save Our Homes (cap on increases in assessed value)
“Real property shall be assessed at full market value (Just Value) as of January 1 of the year in which the property first receives the Homestead Exemption. The following year the property is reassessed and any changes from the prior year's assessed value is not to exceed the lesser of 3% of that prior year assessed value or the Consumer Price Index percentage change, (except capital improvements, additions or improvements).”
Keep in mind that Just Value is typically several percentage points below what could be achieved in an arm’s length sale. The difference is an allowance for “transaction costs” associated with a typical sale such as commissions and documentary stamps. Just Value is set on January 1 of each tax year. It is based on the sale price of comparable properties during the previous year. That means that they are always one year behind the market.
“In 1995, the Department of Revenue adopted a rule, approved by the Governor and Cabinet, directing Property Appraisers to raise the assessed value of a qualifying homestead property by the maximum of 3% or the Consumer Price Index, whichever is less, on all properties assessed at less than full market value (just value).”
In simple terms, this means that your Assessed Value can increase even when your property’s value declines.
For example, a randomly chosen home in the “C” section has a 2015 Just (Market) Value of $224,514. The property has been homesteaded for several years. Tempered by its homestead status, the Assessed Value has been held to $155,765. The owners are saving $2,266.71 on their 2015 property taxes (vs. non-homsteaded) through the combination of Homestead Exemption and a $68,749 Protected Value attributed to the Save Our Homes cap on Assessed Value increases.
Ten years in the assessment life of a Palm Coast residence in the “C” Section
This home sits on one of Palm Coast’s salt water canals. At the peak of the real estate bubble in 2006, the home’s Just Value reached $447,454. What has happened since illustrates all three key Homestead-related concepts.
|YEAR||JUST VALUE||ASSESSED VALUE||EXEMPT VALUE||TAXABLE VALUE||MAXIMUM PORTABILITY|
Note: Effective in the 2008 tax year, the Homestead Exemption was raised from $25,000 to $50,000. The increase was not effective for school taxes. The school tax exemption remains at $25,000.
In the example, the home’s Just Value dropped precipitously (59.25%) to $182,323 over a six-year period, not unusual in the local market, and has climbed since. The home was acquired in 1995, so the homeowner benefitted cumulatively from the Save Our Homes cap through the entire period of explosive price increases leading up to 2006. Consequently, the homeowner’s 2006 Assessed Value was $315,521 less than the Just Value. The differential is called Maximum Portability. The homeowner’s 2006 property tax bill for the home with a Just Value of $447,454 was only $1,701.21.
Because of the Recapture provision however, the Assessed Value continued to rise throughout the subsequent 10 years. That is because the Assessed Value remained below Just Value in each year. Each yearly increase in Assessed Value was capped by the Save Our Homes provision. The Maximum Portability dropped over six years from $315,521 to only $32,623 in 2012. Even though the local market turnaround has been modest, the homeowner’s Maximum Portability has increased to $68,749 since 2012.
If Just Value had dropped below Assessed Value, Assessed Value would have gone down in lock step with Just Value, since all the previous Maximum Portability would have been “recaptured.” There is no cap on an Assessed Value decrease percentage.
Establishing the Homestead Exemption
The Homestead Exemption status for a property is established “as of” January 1 of the tax year. This can lead to confusion and possible lost deductions. Note what happens in a typical mid-year transaction.
- Bob and Carol buy a home from Ted and Alice. The transaction closed July 1, 2015 and the 2015 property taxes were estimated and pro-rated at closing.
- Ted and Alice were properly homesteaded at that address as of January 1, 2015.
- Bob and Carol moved into the home as their primary residence immediately after closing.
- The transaction was properly recorded at the county, resulting in the 2015 property tax bill being mailed to Bob and Carol.
- The tax bill did not reflect the price Bob and Carol paid for the home.
- The tax bill also reflected a $50,000 Homestead Exemption although Bob and Carol had not applied for it. Further, Bob and Carol’s Homestead Status would not be applicable until January 1, 2016.
The 2015 Tax Roll was based on values “as of” January 1, 2015. The Property Appraiser based the 2015 tax roll on sale prices of comparable properties during 2014 (the previous year). That’s why the price Bob and Carol paid for their new home was not reflected in the Assessed Value stated on the Property Tax Bill.
The Homestead status of the property was properly established on January 1, 2015. The status remains for the entire year, meaning that Bob and Carol benefit from the Exempt Status established by Ted and Alice. The fact that Bob and Carol intend to homestead as well does not apply here. They would have benefitted even if they bought the home as a second home.
Bob and Carol should not assume from the Exempt Status of the 2015 tax bill that they are homesteaded, and therefore entitled to an exemption, going forward. That would be a mistake. The 2015 Homestead Exemption expires at the end of 2015 because the property was sold.
Bob and Carol MUST apply and qualify for their own Homestead Exemption for 2016 and beyond. They could apply as soon as they move in but no later than March 1, 2016. Either way, Bob and Carol’s status will be effective as of January 1, 2016.
Bob and Carol’s True Value and Assessed Value will be reset for the 2016 tax year, based on comparable 2015 sale prices, including the price paid by Bob and Carol for their home. If they properly establish their 2016 Homestead Exemption, their newly established Exempt Status will set the 2016 Assessed Value as the new baseline subject to a cap on all future increases.
“When there is a change in ownership, the assessed value will be brought up to the market value. This may include a name change on your deed. According to Section 193.155(3) Florida Statutes, except as provided therein, property shall be assessed at just value as of January 1 of the year following a change of ownership. Therefore, adding or removing the name of an individual as a joint owner of the property can require the property’s assessed value to be reassessed at market value as of January 1 following the change of ownership if the new owner files for Homestead Exemption.”
The Property Appraiser is notified of any change in title. Changing the title to a trust can trigger a reassessment if the trust places any limitations or restrictions on the resident’s continued beneficial use. Always seek an attorney’s advice before changing title.
The Property Appraiser does not set taxes. Taxes are levied by taxing jurisdictions; Flagler County, City of Palm Coast, Flagler School District, St. Johns River Water Management District, Mosquito Control, etc.
The Property Appraiser is responsible for making the tax assessment role fair and equitable. If you feel that either your assessment or exempt status (or those of another person) is incorrect, contact the Property Appraiser. The PA’s office can be reached at 386-313-4150. If this is your first-time contact, you will be pleasantly surprised with the staff's pleasant and helpful attitude, especially if you recently moved from “up North.” The PA’s helpful website is www.flaglerpa.com.
*Be sure to listen to me and co-host David Alfin on our weekly half-hour radio show, Real Estate Matters, every Sunday morning at 9:00 on WNZF News Radio. David and I discuss a wide range of real estate topics. Listen on 1550 AM or 106.3 FM or streaming live at https://player.listenlive.co/36561. Past shows can be found at https://www.flaglerbroadcasting.com/wnzf/#archives.
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