By now, most Florideans have figured out that the most valuable benefit of the homestead exemption is not the $50,000 exemption itself, but the 3% cap on the annual increases in the assessment of their homestead property. Conversely, the worst part of losing a homestead exemption is receiving a tax bill the next year that is based on the full fair market value of your property. Unfortunately, the law regarding when a property loses the Save Our Homes Amendment ["SOHA"] cap and must be reassessed at just value is a bit convoluted. This article will address some of the most common reasons for losing the SOHA cap.
What constitutes a “change of ownership”?
Florida Statute 193.155(3)(a) provides that the SOHA cap is lost, and the property must be reassessed at just value as of January 1st of the year following a change of ownership. A “change of ownership” is defined as “any sale, foreclosure, or transfer of legal title or beneficial title in equity to any person, except as provided in this subsection.” Thus, obviously the SOHA cap is lost when a property is sold to a completely new owner. However, because “change of ownership” is defined rather broadly, there are many other situations that could trigger a loss of the SOHA cap, even though the average person might not think of the situation as a change of ownership.
Loss of Cap on Death of Homestead Recipient
One common misconception is the belief that the SOHA tax savings are inheritable. When a property owner passes away, the heirs may expect that the taxes on the property will continue to be based on their parents’ or grandparents’ capped value. However, that is usually not the case. If a property owner dies leaving a spouse or minor children, the transfer of the property to the spouse or minor children is not considered a “change of ownership.” Likewise, the statute includes an exception for property that is transferred to someone who was legally or naturally dependent on the deceased owner and who is living on the property. However, if the property is inherited by adult children or other beneficiaries, the property will generally be reassessed at its full just value the next tax year.
Removal of Co-Owner from Title
Another situation that sometimes catches taxpayers by surprise is when they lose the SOHA cap because they removed a co-owner from the title to their property. Many people who own property jointly with others would probably not consider the removal of a co-owner to be a change in ownership. However, in Attorney General Opinion 2002-28, the Attorney General advised the Property Appraisers that removal of one joint owner triggers reassessment of the entire property at its just value as of January 1st of the following tax year.
Addition of Co-Owner to Title
Previously, the Attorney General had also advised that the addition of a co-owner to the title of homestead property constituted a change of ownership. The legislature has since amended the statute to clarify that the addition of a co-owner will not necessarily be considered a change of ownership, unless that new co-owner applies for their own homestead exemption on the property. For example, if Grandpa Joe added his granddaughter Susie to the title of his homestead property, the property would continue to be assessed based on its capped value. However, if Susie went down to the Property Appraiser’s office and applied for her own homestead exemption on the property, Grandpa Joe would get a nasty surprise when the next year’s tax bill arrived, as the property would be reassessed at its just value.
The reason for this is, I believe, based on the basic notion that the SOHA tax savings was not intended to be inheritable. Thus, while a taxpayer can add a relative or other person to their title for estate planning or other purposes without losing the SOHA cap, they cannot use estate planning devices to pass down the tax savings to their heirs. In the above example, if Grandpa Joe passed away and Susie decided to live in the property, she could apply for her own homestead exemption, but the property would be reassessed at just value and the SOHA cap would apply to that new base year value.