In 2008, Florida voters amended the Constitution to give non-homestead property owners some protection against dramatic increases in their annual property tax assessments. As amended, the Florida Constitution now prohibits the assessment of certain non-homestead property from increasing by more than 10% per year. Ironically, this amendment passed just as assessments of commercial property began to decrease, so few property owners have seen the benefits of this cap, but that may begin to change in 2011. Thus, this post will address common questions about the 10% cap such as who qualfies, how the cap can be lost, and what to do if your value increases by more than 10%.
What property is protected by the 10% cap?
The 10% cap applies to most types of commercial property, including nonhomestead residential property (i.e. apartments and other rental property) and nonresidential property (i.e. commercial property and vacant land). Property that is not protected by the 10% cap includes agricultural property, conservation land, and certain other property that is already accorded favorable tax treatment. Of course, it also does not apply to homestead property, as homestead property is protected by the 3% cap of the Save Our Homes Amendment. The requirements for residential property are set forth in Fla. Stat. 193.1554, and the requirements for other commercial property are set forth in Fla. Stat. 193.1555.
With values decreasing, does anyone really benefit from the 10% cap?
Actually yes. In my experience, the taxpayers who really benefit from the 10% cap are those who successfully obtain a reduction of their assessment by the Value Adjustment Board process. In the past, a taxpayer could obtain a reduction in one tax year, but have to fight the same battle over and over in future years. Now, any reduction obtained during the VAB process is somewhat protected for future tax years as well.
What events will trigger the loss of the 10% cap?
The protection of the 10% cap is lost when there is a change of ownership or control. This includes the transfer of the property by sale, foreclosure, or other means (other than tranfers to correct an error, transfers between spouses, and transfers between legal and equitable title). If the property is owned by a corporation, LLC, partnership or other such entity, the cap will also be lost upon a transfer of more than 50% of the ownership in that entity. Thus, a stock transfer may also trigger loss of the cap and re-assessment of the property at fair market value. However, in 2010, the legislature amended the statute to create an exception for publicly-traded companies if the transfer of the shares occurs through the buying and selling of shares on a public exchange.
For nonresidential property, the cap can also be lost by adding an improvment that increases the value of the property by at least 25 percent. Thus, while more routine changes, additions and improvements may only slightly affect the assessment, a substantial improvement that increases the overall value by 25% or more will result in the reassessment of the entire property at fair market value.
How does the Property Appraiser know if there has been a change of ownership or control?
Normally, the Property Appraiser learns that a property has been transferred when a deed is recorded in the public records. However, the public records will generally not disclose if a property is owned by the same entity, but the entity itself has undergone a change of control. Thus, Fla. Stat. 193.1556 requires any person or entity who owns property that is protected by the 10% cap to notify the Property Appraiser of any change of ownership or control on a form provided by the Department of Revenue. If a property owner fails to notify the Property Appraiser and the Property Appraiser later discovers that the property was erroneously continuing to receive the 10% cap, the Property Appraiser can record a tax lien for the back taxes, a 50% penalty and 15% interest, which is the same penalty applied in cases of homestead fraud.
I met the requirements, so why did my assessment increase more than 10% this year?
Assuming that you met all of the requirements for the 10% cap, it could very well be that the Property Appraiser made a mistake. It seems that some of the Property Appraisers’ computer systems have had difficulty processing the 10% cap. Quite a few taxpayers contacted me in 2010 with concerns about the fact that their assessments erroneously increased more than the 10% cap and almost all of those issues were due to simple computer or data entry errors. Thus, I would recommend contacting the Property Appraiser’s office, as it may be a simple issue to correct. If that does not work, then you may be able to seek relief through the VAB process.
February 3, 2011 at 8:39 pm
Sherri, the Texas legislature is back in session and one of the bills being considered is placing a 10% cap on commercial and industrial properties. Currently we don’t have a cap on commercial, only homestead. The tax reps in Texas are dead set against it, presumably for business reasons. Most appeals work is done on contingency so that’s a lot of fee revenue being capped also. How long has FL had the cap? Does it have an effect on a property owner’s desire to protest when their is a 25% increase in market value but only a 10% increase in taxable value? Do you know if this type of work is done mostly on contingency or flat fee in FL?
February 4, 2011 at 4:30 pm
Excellent article Sherry. I would add that the 10% CAP does not apply to school board millage. School millage typically ranges from 30%-40% of the total millage on a property. So it is entirely possible that a commercial property’s assessment could go up more than 10%, even though it is capped. For example if the total just value (market value) of a property increased by 15%, the non-school board assessed value would be capped at 10%, but the school board assessed value would be free to go up the full 15%. The net effect could be a 12% increase, overall. It’s going to make for some confusing TRIM notices if we ever see those kind of increases again!
February 5, 2011 at 1:24 am
Tim makes an excellent point, as always. In that situation, the taxpayer would probably see two values on the Trim notice – one value that was capped and one that was not. It could definitely get confusing.
February 14, 2011 at 1:37 am
commercial property including rentals should be taxed on rental income. Right now only the big boys get this with at least 6 units ,in Florida. The individual that owns 1 unit misses out and gets taxed to death, sometimes at 50% of rental income.
February 22, 2011 at 8:57 pm
Nice concise job in conveying the information. We are seeing some tax firms starting to change from an annual billing on one value to billing the capped and uncapped portions differently.
November 9, 2011 at 10:51 pm
We are from Canada and have rental property in Lee County, Florida.
We were assured that a 10% non-homestead cap will apply but recently received a tax bill with over 20% increase.
Upon inquiry at the Appraiser’s office in Fort Myers we were told that the cap does not apply untill we have been the owners for one tax year.
Could anyone advise if that is correct and where we could find the specific.legislation .
November 17, 2011 at 3:03 pm
Yes, that is correct. The first tax year after you purchase the property, the property will be assessed at just value. In future years, it will not be able to increase more than 10%.
May 22, 2013 at 3:37 pm
What is the Cap on residental Property