Save Our Homes Pitfalls: How to Avoid Losing the 3% Homestead Cap

August 13, 2010 — Sherri Johnson

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.

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Posted in Homestead Exemption, Save Our Homes Amendment. Tags: , , , , , , , . 5 Comments »

Qualifying for a Florida Homestead Exemption

February 17, 2010 — Sherri Johnson

The March 1st deadline to apply for a Florida homestead exemption is rapidly approaching.  If you moved to a new home within the last year, this is a deadline you do not want to miss.  This article will explain the benefits of the Florida homestead exemption, the requirements for an exemption, how to apply for an exemption, and what to do if your application is denied.  It will also address some of the thornier issues, such as rental of homestead property and claiming multiple exemptions per family.

Benefits of a Homestead Exemption

There are numerous financial benefits to having a homestead exemption on your property.  On the most basic level, the homestead exemption itself entitles most homeowners to a deduction of $25,000 off of their property’s assessed value, which can result in several hundred dollars in tax savings.  If your home is worth at least $75,000, you will receive an additional $25,000 deduction from your assessed value, although that additional deduction will not apply to school tax levies.  Once you establish your right to a basic homestead exemption on your property, you may also qualify for additional homestead exemptions if you are over 65 years old or have a disability.  But perhaps most importantly, receipt of a homestead exemption means that, pursuant to the Save Our Homes Amendment to the Florida Constitution, the assessed value of your homestead property cannot increase more than 3% per year or the percent change in the Consumer Price Index.  Moreover, in many cases, this tax savings can  now be transferred to a new Florida residence if you move.  Thus, while the basic homestead exemption may only save you a few hundred dollars per year, the rights that come with a homestead exemption can be extremely valuable.

How to Apply for a Homestead Exemption

Homestead exemption applications must be filed with the county Property Appraiser by March 1st of the tax year for which the exemption is sought.  Thus, in order to receive a 2010 homestead exemption, you must apply by March 1, 2010.  If you acquired or moved into your new home after January 1, 2010, then you would not qualify for a 2010 homestead exemption, but you can go ahead and apply now for a 2011 homestead exemption.   If you already have a homestead exemption, you probably do not need to re-apply, as most counties use an automatic renewal process, whereby you only need to notify the Property Appraiser if you are no longer entitled to the exemption.

What property qualifies for a homestead exemption?

Pursuant to Fla. Stat. 196.031, in order to qualify for a homestead exemption, as of January 1st of the tax year in question, you must have either legal or beneficial title to the property for which you are seeking an exemption, and the property must be the permanent residence of either yourself or someone who is legally or naturally dependent on you.  Thus, the property can be owned by a trust, as long as the applicant retains beneficial title and a possessory interest in the property.  However, the homestead exemption may not be claimed by a corporation.

The property must also be you or your natural dependent’s “permanent residence,” which is defined by Fla. Stat. 196.012(18) as “that place where a person has his or her true, fixed, and permanent home and principal establishment to which, whenever absent, he or she has the intention of returning.”   In determining whether the property is your permanent residence, the Property Appraiser may consider a number of  statutory factors, including but not limited to the existence of a formal declaration of domicile, where your children are registered for school, your place of employment, residency in another state, the address where you are registered to vote, the address on your driver’s license or identification card, vehicle registration, the address on your federal income tax returns, the address on your bank statements, and proof of payment for utilities at the subject property.

Also, the homestead exemption only applies to that portion of the property that is classified and assessed as owner-occupied residential property.  Thus, mixed-use properties may only receive the homestead exemption benefits on a portion of the property.

Can a taxpayer claim more than one homestead exemption?

No.  In fact, Fla.Stat. 196.031 prohibits anyone who receives the benefit of a residency-based property tax exemption or tax credit in another state from also receiving a Florida homestead exemption.  Thus, not only can you not claim two Florida homestead exemptions, but you also cannot claim an additional residency-based exemption in another state.

Can my spouse claim a separate homestead exemption on property that they own independently?

Possibly.  The Florida Constitution only allows for one homestead exemption per family unit.  While the proper interpretation of “family unit” could, and likely will, take up an entirely separate article, most Property Appraisers interpret this provision to mean that a married couple can only receive one homestead exemption.  The Attorney General’s office and some trial courts have interpreted this provision to occasionally allow for separate homestead exemptions where the couple is separated or can prove financial independence.  However, not all Property Appraisers agree with this interpretation and this issue continues to wind its way through the courts.  Anyone who plans to try to obtain separate homestead exemptions should seek the advice of an attorney in order to avoid potentially costly penalties in the future.

Can I still receive a homestead exemption if I rent my property?

Possibly.  Fla. Stat. 196.061 provides that the rental of an entire dwelling constitutes the abandonment of that dwelling as a homestead.  However, under the Florida Constitution, the ultimate issue is whether the property was your permanent residence on January 1st of that tax year.  In recognition of that fact, the statute contains an exception, which states that abandonment of a homestead after January 1st of any year shall not affect that year’s homestead exemption as long as the property is not abandoned after January 1st for two consecutive years.  Thus, a snowbird who heads up north for the summer could conceivably rent their property every other year during the warmer months without losing their homestead exemption.

But isn’t it okay to rent homestead property, as long as you don’t rent it for more than 6 months?

No.  The confusion on this issue came about because, pursuant to Florida Statutes 196.081, 196.091 and 196.101, certain disabled veterans and other totally and permanently disabled persons are entitled to a complete exemption from all property taxes for their “real estate that is used and owned as a homestead.”  Florida Statute 196.012(13) then defines this phrase “real estate used and owned as a homestead” as the person’s homestead property, less any portion thereof used for commercial purposes.  The statute then states that “property rented for more than 6 months is presumed to be used for commercial purposes.”

In effect, if a permanently disabled veteran used a portion of their homestead property for commercial purposes, such as by renting a room or using a portion of the property for a home office, they would not receive a complete tax exemption on that portion of the property, although they would arguably still be entitled to the homestead exemption on the entire property.  In the author’s opinion, this definitional statute applies only to the total exemption for certain disabled persons, and not to the basic homestead exemption.  However, some Property Appraisers apply the 6 month rental limitation in their homestead exemption determinations, and a recent appellate decision may add fuel to that argument.

Conversely, just because the property is presumed to be used for commercial purposes if rented for more than 6 months does not mean that you can safely rent your property for less than 6 months without losing your homestead exemption.  As discussed above, your right to a homestead exemption is determined as of January 1st.  Thus, rental of homestead property on January 1st of any tax year, even for a few months, is a risky move.

Appealing a Denial of Your Homestead Exemption Application

The Property Appraisers are required to notify taxpayers by July 1st if they plan to deny their application for a homestead exemption for that tax year.   Fla. Stat. 194.011 then gives the taxpayer 30 days to file a petition to the county Value Adjustment Board.  Please note that if the Value Adjustment Board denies your petition, you have only 15 days in which to file an appeal to the circuit court.  See Fla. Stat. 196.151.  If you do not want to file a petition to the VAB, you can file an action directly in the circuit court, but such a lawsuit must be filed within 60 days of certification of the tax roll.

Posted in Homestead Exemption. Tags: , , , , , , , . 220 Comments »

Homestead Portability: Transferring Your Homestead Cap to Your New Home

February 7, 2010 — Sherri Johnson

In Florida, the Save Our Homes Amendment to the Florida Constitution prevents the assessed value of homestead property from increasing more than 3% per year, or the percent change in the Consumer Price Index, whichever is lower.  While the tax savings from the Save Our Homes Amendment has no doubt helped many homeowners to stay in their homes even when values were rising, it also tended to discourage homeowners from moving to a new residence, for fear of giving up all of their accumulated property tax savings.  In 2008, Florida voters attempted to change that by amending the Florida Constitution to allow for “portability” of their accumulated homestead exemption tax savings.  This article will explain the basics of how to “port” your Save Our Homes tax savings to your new residence, and will address some of the more complicated situations that can arise, particularly when more than one owner is involved.

Portability Basics

The rules regarding portability are set forth in Florida Statute 193.155(8).  Essentially, a homeowner may “port” their Save Our Homes tax benefits to their new home as long as they establish their new homestead within 2 years of abandoning their previous homestead.  More specifically, in order to qualify for portability in a given tax year, the homeowner must have received a homestead exemption on their previous homestead in one of the last two tax years.  If the new homestead is more valuable than the old homestead, the homeowner may port up to $500,000 of capped value to their new homestead.  For example, suppose your old home was worth $350,000, but was assessed at only $250,000 due to the Save Our Homes Amendment (a $100,000 cap differential).  If you were to move to a new home worth $500,000, that home would be assessed at no more than $400,000 in the first year, with subsequent increases limited to 3% per year, or the percent change in the CPI.  If you move to a less valuable home, the amount of cap differential that you may port will be limited to your old home’s assessed value divided by its just value.  For example, if your old home was worth $500,000, but was assessed at $400,000, and you move to a less valuable home, the new home will be assessed at 80% of its just value the first year, as long as the cap differential does not exceed $500,000.

In order to port Save Our Homes benefits, when filing an application for a new homestead exemption, you must also file Form DR-501T, for Transfer of Homestead Assessment Difference by March 1st of the year you intend to establish a new homestead.

Portability When Combining Households

If two people who each have their own homestead decide to acquire a new homestead together, the Property Appraiser will use whichever prior homestead would result in the highest cap differential, and thus the highest tax savings.  However, once again, the cap differential may not exceed $500,000.

Portability When Abandoning Joint Property

When joint owners abandon homestead property and acquire new, separate homestead properties, the cap differential that they are allowed to port is calculated as described above.  However, the cap differential is then divided by either the number of owners of the prior homestead or, in the case of property owned as tenants in common, by each owner’s proportionate interest in the prior homestead.  For example, if two joint owners would be allowed to port a $100,000 cap differential to the same new residence, if they move to separate new residences, they would each be permitted to port $50,000.

Challenging Portability Decisions

A taxpayer may not challenge the assessment of their prior homestead property in a prior year, as that would be contrary to the requirement in section 194.171, Fla. Stat. that all tax assessment challenges be brought within 60 days of the certification of the tax roll or the decision of the VAB.  However, pursuant to Florida Statute 194.011(6), if a taxpayer disagrees with the Property Appraiser’s determination of their entitlement to portability or the amount they are allowed to port, they can file a Form DR-486PORT petition to the Value Adjustment Board where their new home is located.  The VAB where the new residence is located will then submit a notice to the VAB of the county in which the taxpayer previously resided and that VAB will hear the petition and render a decision.  The decision of the VAB in the previous county will be submitted to the VAB in the new county, which will consider that decision in rendering its own final decision (yes, I know – I never said this was a simple process).  If a taxpayer disagrees with the decision of the VAB, they may appeal the decision to the circuit court of the county in which their new homested is located, and that proceeding shall be de novo.

Posted in Homestead Exemption, Save Our Homes Amendment. Tags: , , , , . 13 Comments »

Frequently Asked Questions About Property Tax Bills

August 19, 2009 — Sherri Johnson

With TRIM notices being issued around Florida in the coming weeks, this post will attempt to answer three of the most commonly-asked questions about property tax bills:  (1) Why is my property assessed at a higher value than my neighbors’ similar property?  (2) Why is my assessed value higher than the price I paid for the property?  (3) Sales prices are going down, so why is my assessment going up?

Why is my property assessed at a higher value than my neighbors’ similar property?  The reason the property tax system was historically considered to be a fair system of taxation was that everyone was assessed based on the fair market value of their property, and that was that.  In the last few years, however, the number of exemptions, special classifications and assessment caps has exploded, thus resulting in similar properties within the same neighborhood being taxed at vastly different rates, depending on when the property was purchased, whether the purchaser was a first-time home buyer, whether the property has a homestead exemption and whether the owner “ported” their cap from another property.

The short answer is that, while the assessed values may differ for a variety of reasons, if the properties are truly similar, the just value should reflect that similarity.  If the just values are substantially different, it is most likely due to differences in the size or configuration of the lot, the age of the improvements, or the overall quality of the construction.  However, if you feel that a mistake has been made, you should contact the Property Appraiser.

Why is my assessed value higher than the price I paid for the property?  The just value of your property is determined as of January 1st of the tax year in question.  While the Property Appraiser is statutorily required to consider the price paid for your property, he can disregard that factor if it is not relevant, i.e. if the sale occurred too long ago or it was not an arms-length transaction, for example.  In most cases, the assessed value is influenced the most by sales of similar property in the area during the last calendar year.

As an example, if you paid $100,000 for your property in January 2005, but similar properties were selling for closer to $200,000 in the last few months of 2008, your 2o09 assessment will likely be higher than what you paid for the property.

If I re-finance my property or take out a line of credit, will my assessment increase?  Probably not.  The Property Appraisers generally base their determinations on actual consummated sale transactions between willing buyers and willing sellers.

Sales prices are going down, so why is my assessed value going up?  Two issues are at play here.  First, the Property Appraiser is required to assess all property at its value as of January 1st, and must submit his or her completed tax roll to the Department of Revenue by July 1st.  Thus, the Property Appraisers tend to rely more on sales that occurred during the previous calendar year, and possibly sales from the first couple months of the current year.  Thus, if sales begin to decline in the spring or summer, that decrease probably will not be recognized until the following tax year.

The other possible reason is the “re-capture” provision of the Save Our Homes Amendment.  If you have had a homestead exemption on your property for many years, chances are your assessed value (on which taxes are determined) has been much lower than the fair market value of your property.  This is because, by law, the assessment of homestead property cannot increase more than 3% per year (or the percent change in the CPI).  However, if your assessment is lower than the fair market value of your property, the assessment will increase by that 3% each year until it matches the just value.  So, even if the just value of your property decreased, as long as your assessed value was lower, that assessed value will continue increasing by 3% per  year or the CPI, until it equals the just value.

Posted in Appraisal Methods, Residential Property, TRIM Notices. Tags: , , , , , , , , , . Leave a Comment »

Assessed Values Down, But Property Taxes Up

August 17, 2009 — Sherri Johnson

I hate to say “I told you so,” but there it is.  The Sarasota Herald-Tribune reported today that Southwest Florida property owners are seeing their tax bills increase, despite receiving reductions in their assessed values due to the economy and the legislative machinations of the last two years.  The simple fact of the matter is that by limiting increases in the value of commercial property to no more than 10% per year, the legislature eroded much of the protection afforded homeowners by the Save Our Homes Amendment.

Owners of homestead property should take heed, as the legislature now wants to give commercial property virtually the same protections enjoyed by homestead property.  If that passes, the current protections in place for owners of homestead property will be essentially worthless.

Posted in Commercial Property, Property Tax Legislation, Save Our Homes Amendment. Tags: , , , , , , , . 1 Comment »