Why New Residents Should Apply For The Homestead Exemption Now!

As we accelerate toward the end of another year, there is an action that every new Florida resident and those intending to become residents should take.  They should apply for the homestead exemption before the end of the year to take maximum advantage of the "Save Our Homes" Amendment to the Florida Constitution.

Each year, every Florida county assesses the taxable value of all real property on its tax rolls. As a result of the Amendment, the taxable value of property that qualifies for the homestead tax exemption may increase no more than 3 percent of the prior year’s assessment or the percentage change in the Consumer Price Index, which ever is less. Of course, the taxable value can never exceed the just valuation (or market value) of the property.

The Market Value of your property increases based on the economic conditions and sales prices of other properties in your area. In some areas of Florida in the years between 2002 and 2006, the market value of some properties increased 20% or more each year for consecutive years. As a result, properties that were originally valued at $300,000 were worth almost $450,000 a couple of years later. You can imagine the increase in property taxes resulting from this.

However, if the $300,000 property was the owner’s homestead, the increase in taxable value was limited to 3% per year. As a result, the taxable value of the property 2 years later would not be greater than $318,270, even though its Market Value was $450,000. This translates into a huge savings in property tax.

Today we are at historical lows in the Market Value of real estate in Florida.  We don't know when values will begin to increase, but by applying for the homestead exemption today, you can lock in the low Taxable Value and save thousands of dollars in property taxes in the years after the Market Value begins to rise.

The amendment provides that after any change in ownership or any new qualification for homestead tax exemption, the homestead property shall be taxed at the just value (or Market Value) as of January 1 of the year following the change in ownership. The amendments limits will apply each year following. So if you move to Florida, become a resident and qualify for homestead status, your property will be re-assessed on the first day of the year after you qualify for homestead at its just value with no limitations on the increase. Each year thereafter, the increase in taxable value will be limited by the amendment.

For this reason, you should move into a new home and apply for the homestead exemption prior to the end of the year so the initial reassessment takes place earlier. This causes the 3 percent cap to take effect a year earlier than if you waited until after the first of the year to apply.

Renting Out Your Homestead?

In The Official Snowbird's Guide to Becoming a Florida Resident you learned the value of the homestead exemption and the method for obtaining it.  This article will touch on a common danger to preserving your homestead tax exemption.

Many Florida residents, especially those transplanted from other states, spend only a portion of the year in Florida.  The rest of the time their Florida home is vacant.  As they watch the economy erode their investments, some of them begin to explore the idea of renting out their home.

One problem of renting your home for part of the year is the possibility of losing your homestead tax exemption.  You're not the only one looking for a little additional income.  The counties are also scratching a clawing for ways to fill in the big hole in their budgets.  As a result, the county Property Appraisers are on the lookout for residents that have abandoned their homestead tax exemption.  One of the things they look for is resident property owners who rent out their homes.

Section 196.061 of the Florida Statutes reads: "The rental of an entire dwelling previously claimed to be a homestead for tax purposes shall constitute abandonment of said dwelling as a homestead, and said abandonment shall continue until such dwelling is physically occupied by the owner..."

Most Property Appraisers interpret this as saying that an owner who rents his homestead loses the exemption for the year of the rental.

What does this mean to you?  If the Property Appraiser's interpretation is upheld -- bad news, that's what.  You can lose the tax exemption which will cost you hundreds of dollars each year in increased property taxes.  Additionally, and even more damaging, your assessed value for property tax purposes will jump up to equal the market value of your property.  This also will result in increased property taxes.  In future years, you will have to re-apply for the exemption.

While this is bad enough, the pain doesn't end here.  Florida law requires property owners to notify the Property Appraiser's office if you no longer qualify for the homestead exemption.  If you fail to inform the Appraiser and continue to take advantage of the exemption when you no longer qualify, you can be hit with some painful penalties.  You may have to reimburse the county for back taxes -- as far back as 10 years -- plus 50% penalties and 15% interest.  OUCH!!!

Does this mean you can never rent your homestead property?  Not necessarily.  The statute you looked at earlier in this article provides an exception.  If you qualify for homestead exemption on January 1 of a certain year and are not renting the property on that day, the rental of your home after January 1 will not affect the homestead tax exemption for that year.  However, you cannot use this exception for 2 consecutive years.

So it appears you can rent out your homestead property every other year if the lease term commences January 2 or later.

However, before deciding to rent your home, it would be a good idea to seek advice from your Florida attorney who is familiar with the homestead law.

March 1 Is The Deadline For Applying For The Homestead Exemption

If you became a resident of Florida before January 1, an important deadline looms within the next 2 weeks.  This is the deadline to apply for one of the biggest advantages of being a Florida resident - the homestead exemption.  This post discusses what it takes to qualify for the homestead exemption, how to apply  for it and reviews its benefits.

Benefits.  Those persons able to take advantage of the homestead exemption are rewarded with a significant reduction in property taxes.  In Florida, every county's Property Appraiser is required to determine the assessed value of every piece of property in the county.  The Appraiser calculates the "Just" or "Fair Market" value of your property which is the price he believes your property would sell for in the open market under normal conditions.  He then subtracts the typical costs incurred in a sale of your property to arrive at the Assessed Value.

For homestead property, the first $25,000 of the Assessed Value is exempt from all taxation.  Also, the $25,000 amount between $50,000 and $75,000 of the Assessed Value is exempt from all property taxes except those levied by school districts.  You can calculate the savings by multiplying the exempt amounts by the county's millage rate.

You also qualify for the benefits of the "Save Our Homes Amendment" which limits the annual increase in the taxable value for homestead property to a maximum of 3% each year.  This can be a huge benefit in times of great appreciation (remember those days?).  No matter how much the market value of your home increases in any year, the amount that your property tax is based on can only increase by 3%.

How to Qualify.  To qualify for the homestead exemption, you must on January 1 of the year for which you are filing be a permanent resident of Florida, own and occupy the property as your permanent residence, and hold title or beneficial interest to the property.

The January 1 date is important.  If you move into the house on January 2, meet every other requirement, and spend every moment for the rest of the year in the home, you will not be entitled to the homestead tax exemption.  You have to be living there on January 1.

Applying for the Homestead Exemption.  If, as of January 1, you meet the qualifications listed above, you may apply for the homestead exemption at the property appraiser's office in your county.  The property appraiser will provide a form for you to complete.  You must sign the application in person at the appraiser's office.  The application must be filed no later than March 1 of the year for wihich the exemption applies.  All persons named on the deed must sign the application, except in the case of husband and wife where only one signature is required.  When applying for the homestead exemption, each of you must provide proof of ownership of the property and proof of Florida residency.

Proof of Ownership.  The following items can be used to provide proof of ownership of the property: Deed (must be recorded in the public records at the time of application), Property Tax Bill, Title Insurance Policy, among other documents.

Proof of Residency.  To show evidence of your Florida residency, you can furnish a valid Florida drivers license or Florida identification card.  Each must have been issued prior to January 1.  You must also furnish one or more of the following items:  Declaration of Domicile (dated prior to January 1), Florida vehicle registration or the previous year's federal tax return showing a Florida residence.  If you are a resident alien, a permanent visa card or temporary visa card with official assurance that permanent resident status is approved must be presented.

Remember, you must apply no later than March 1 or you will lose a valuable aspect of Florida residency. You can read more about this and other Florida residency topics in The Official Snowbird's Guide To Becoming A Florida Resident.