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.

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.

Amendment 1 to Florida's Homestead Law

In January, 2008, the citizens of Florida approved Amendment 1 to its state constitution and changed the property tax system in Florida.The amendment has four major provisions: 

 

1. Increased homestead exemption.

2. Portability of the Save Our Homes benefit.

3. $25,000 tax exemption for tangible personal property.

4. 10% annual cap for non-homestead property.

Increased Homestead ExemptionAn additional exemption of $25,000 was created to lower the taxable value of homestead property for all taxes except those levied by school districts.

The exemption will apply on the assessed value of the homestead property that exceeds $50,000. This means that, if the just valuation of your homestead property is $100,000, the first $25,000 of value and the assessed value between $50,000 and $75,000 would be exempt from taxes. However, the value between $50,000 and $75,000 would still be used to determine the amount of school tax.

Portability of the Save Our Homes BenefitUnder Save Our Homes, the assessed value of homestead property cannot increase more than 3% each year. Previously, if you sold your homestead and bought a new home, the taxable value of the new home would be equal to the just valuation. All of the benefits you accrued in your old home under the Save Our Homes amendment would be lost. As a result, some new homeowners suffered a large increase in property taxes even though the market value of the new home was not greater than that of the old one.

 Now, under Amendment 1, you can transfer some of the Save Our Homes benefit to your new home.

If the market value of your new home is the same or greater than your old home’s market value, the entire difference between market value and taxable value will be applied to your new home.

This is explained by the following illustration:

	Market Value	Taxable Value	Difference
Old Home	300,000	200,000	100,000
New Home	400,000	300,000	100,000

The market value of your old home at the time you sell it is $300,000. You have lived in it for 12 years and the taxable value at the time of sale is $200,000, creating a difference of $100,000. The market value of your new home at the time you purchased it is $400,000. Amendment 1 allows you to transfer the $100,000 difference from your old home and therefore the taxable value of your new home starts at $300,000. Prior to Amendment 1, the taxable value of the new home would have been equal to the market value: $400,000.

If the market value of your new home is less than that of your old home, you will not receive the entire difference. Instead, the new home’s difference will be the same percentage of its market value as the old home’s difference is of the old home’s market value.

	Market Value	Taxable Value	Difference	% Difference
Old Home	300,000	200,000	100,000	33.3%
New Home	200,000	133,334	66.666	33.3%

In this example, the old home’s Save Our Homes difference is 33.3% or 1/3 of its market value. The new home’s difference would be 33.3% of its market value, or $66,666. Therefore, the taxable value of the new home would be $133,334.

Under Amendment 1, if you establish a new homestead and, (1) qualify for the homestead exemption by January 1 of a particular year and, (2) you had a homestead exemption on your old home in either of the two immediately preceding years and, (3) you apply for the homestead exemption and Amendment 1 transfer (of the difference) by March 1 of the particular year, then you will be able to transfer all or part of the difference (see examples above) to your new home.

When you apply for the exemption on your new home, you will have to include a copy of your notice of proposed property taxes on your old home and sign a sworn statement that you are entitled to the assessment reduction.

$25,000 Tax Exemption for Personal Property 

The third part of Amendment 1 is a $25,000 exemption on all tangible personal property such as machinery, furnishings, fixtures and equipment. This will provide a small relief for businesses who get nothing from the homestead exemption increase and Save Our Homes portability.

According to the National Federation of Independent Business, about 1.3 million businesses file tangible personal property tax returns in Florida, paying an average of $450 per year. This provision will also benefit landlords as the exemption will apply to furniture and appliances in rental properties.

One type of taxpayer who will benefit from this exemption is the mobile home owner. More than 1.1 million Floridians currently live in mobile homes or manufactured housing parks and communities. The tangible personal property tax for those living on a leased lot in a community is levied against their porches, sunrooms, storage rooms and carports. With the $25,000 exemption, most of them will no longer pay any tax at all.

10 Percent Cap for Non-Homestead PropertyPart 4 of Amendment 1 provides a ten percent cap on annual increases in the assessment of non-homestead property, both residential and non-residential.

Owners of second homes and rental property endured the largest property tax increases over the past several years. Some of the most urgent lobbying for property tax relief came from owners of second homes.

Despite these factors, they will only receive modest relief under the new law. According to Florida Tax Watch, an independent watchdog group, single year increases in taxable value generally fall below 5 percent, making the 10 percent cap “so high as to be of little value to most properties.”

Many people involved in these issues believe that Amendment 1 is only a start. Because of Governor Crist’s commitment to tax relief, it seems likely that many of the deficiencies in the law will be addressed by the legislature and the Governor in the near future.