Reducing Real Estate Tax Burden Through Portability
If your permanent residence is in the State of Florida, you should be familiar with the two homestead exemptions under Florida law.
The first is found in the State Constitution, Art. X, Section (4), which protects the homestead from forced sale with three exceptions: the payment of taxes and assessments thereon (real estate taxes), obligations contracted for the purchase, improvement or repair thereof (mortgages or lines of credit on the property), or obligations contracted for house, field or other labor performed on the realty (mechanics’ liens for work performed on the property). These are very strong property protections afforded to persons whose primary residence is in Florida.
Section 4 also contains a restriction on devising the property when the owner is survived by a spouse of minor child, and also requires any encumbrance on the property or sale thereof to be joined by the owner’s spouse.
The second major exemption is the statutory exemption for purposes of assessing taxes.
Specifically, we are discussing the “cap” on year-to-year assessments and portability of those tax savings to a new homestead pursuant to the 2008 Amendment to the Constitution—Florida’s Save Our Homes (SOH) provision—which allows the transfer of the Homestead Assessment Difference from one property to another, now commonly referred to as “portability.”
A property that begins receiving a homestead exemption cannot have the assessed value on the tax roll increase more than 3% or the CPI, whichever less. If the property’s market value increases at a greater rate than the limitation on the assessed value, the difference between the “assessed value” and market value becomes a Homestead Assessment Difference. Historically, this Cap benefit saved property owners thousands of dollars in taxes on their Homesteaded property. However, they lost this benefit if they bought a new home. Hence, the 2008 SOH Amendment.
As a benefit of the provision, homeowners now have up to two assessment years (two January 1st) to establish a new homestead and thereafter transfer the previous assessment difference, up to $500,000, to a new homesteaded property.
For example, if a property owner abandons a homestead on September 2020. She now has until January 1, 2022 to establish a new homestead. The owner may apply for Portability concurrently with the homestead application or at a future date. The Homestead Assessment Difference from the year the homestead was abandoned will be applied to the assessed value of the new homestead property in the year the homestead is first approved. However, property taxes will not be subject to refunds for previous years.
Portability is calculated by first determining the Homestead Assessment Difference—that is, the difference between the market value of the previous homestead and its assessed value. The Homestead Assessment Difference for a home with the market value of $300,000.00 and an assessed value of $200,000.00 is $100,000.00. If the market value of the new homestead property is higher, for example, $400,000.00, you would subtract the $100,000.00 to get an assessed value of $300,000.00. In this scenario, the property owner was able to benefit from 100% of the Homestead Assessment Difference because the new homestead had a higher market value and the Homestead Assessment Difference on the abandoned homestead was less than $500,000.00.
If the owner is downsizing, she would only be able to benefit from the Homestead Assessment Difference apportioned to the difference in market value of the new homestead. If the new homestead is worth 50% less than the abandoned homestead, the Portability would be 50% of the Homestead Assessment Difference. The previous homestead had a market value of $300,000.00 and an assessed value of $200,000, like the example above, the Homestead Assessment Difference equals $100,000.00. However, if the new homestead had a market value of $150,000.00, the Portability from the previous homestead would be $50,000.00 (50% of the Homestead Assessment Difference) and the assessed value of the new homestead would be $100,000.00.
As you can see, Portability can offer Floridians major savings on property taxes assessed on homestead properties. Do not worry about getting the figures correct as the County will crunch the numbers for you. Just remember that you must establish a new homestead within two years of abandoning the previous homestead and that the application for Portability is filed separately from the homestead exemption application.