MOVING? THE CAP ON YOUR HOMESTEAD IS PORTABLE

by Grant W. Kehres* | Posted 09/15/2014

Property taxes in the State of Florida are calculated on the assessed value of one’s home. In the early 1990’s, during a prosperous housing market, homeowners were faced with a problem. If a homeowner purchased a home for $300,000, he or she would expect to pay property taxes on that amount. If the home suddenly appreciated in value to $400,000, the homeowner may not have been able to pay the proportionate increase in taxes. As a result, many people actually had to sell their homes because the market was performing too well.

In response to this problem, Florida voters passed “Save Our Homes,” an Amendment to the Florida Constitution. Under Save Our Homes, and as codified in the Florida Statutes [1], the increase in assessed value of a homestead property is capped at the lesser of either: 1) 3% from the previous year, or 2) the percentage change of the Consumer Price Index [2].

While this Amendment remedied one problem, it created another. Homeowners became protected by a capped assessment, which enabled them to remain in their homes while their values were escalating. However, this Amendment made homeowners reluctant to move to a new residence because of the cost associated with giving up their tax savings that the cap provided.

In 2008, the Florida Constitution was once again amended to allow for the portability of all of a homeowner’s accumulated savings, via the cap on increases in assessment value of homestead property [3]. A homeowner is entitled to “port” their assessment tax benefits to a new purchased home as long as the new homestead is established within two (2) years of abandoning the previous homestead.  Using the above example, assume that your $300,000 house is assessed at only $200,000, due to the Save Our Homes cap on assessments. Before the 2008 Amendments, a homeowner would be hesitant to move and give up those tax benefits afforded. Under the 2008 Amendment, the homeowner may now purchase a new property and the $100,000 differential (between the $300,000 value of the house and the $200,000 assessed value) is transferred to the new property. In other words, if the homeowner purchases a new house for $600,000, the homeowner can transfer the $100,000 differential to create an assessment value of $500,000 on the new property. This, of course, is provided that the homeowner establishes the new homestead within the two year allowable period.

Where it gets tricky, however, is when a homeowner moves into a less expensive new property. If a homeowner is moving from the $300,000 home (which is assessed at $200,000 under the 1995 Amendment) and into a $150,000 home, the homeowner is not afforded a $100,000 differential. Instead, the homeowner is afforded the same ratio of its previous difference in assessment. In this example, the first home is assessed at two-thirds of its value ($200,000 on a $300,000 house), so the new home will be assessed at two-thirds of its value, or $100,000 on the new $150,000 home.

Our office possesses extensive experience in assisting clients with homestead issues and routinely assists clients in establishing first homestead properties and with advice on portability in regard to new homestead properties. For of your homestead needs, we invite you to tap into our 34 years of Florida real estate law knowledge and experience.

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[1] Section 193.155 of the Florida Statutes, Homestead Assessments, as amended from time to time.

[2] Section 193.155 (1) (b) of the Florida Statutes defines “Consumer Price Index” as the percentage change in the Consumer Price Index for All Urban Consumers, U.S. City Average, all items 1967=100, or successor reports for the preceding calendar year as initially reported by the United States Department of Labor, Bureau of Labor Statistics.

[3] Those specific rules regarding portability are set forth in Florida Statute 193.155(8)

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*Grant Kehres is Board Certified by the Florida Bar Board of Legal Specialization as a Real Estate Law Specialist.  He holds a doctorate in jurisprudence from Vanderbilt University, an MBA (finance) from Babson College and a dual undergraduate degree in Investments and Economics from Babson College.  Admitted to The Florida Bar in 1978, he has handled more than 10,000 closings for more than 8,000 clients.  For more information on our services and what distinguishes our office from other law firms and title companies, call (561) 392-5200 or e-mail us at info@bocaclosings.com.

 


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