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The latest version of property tax reform: How it works
TALLAHASSEE, Fla. – Nov. 1, 2007 – The Florida Legislature,
caught in a game of “chicken,” approved a measure that
will appear before voters on the Jan. 29, 2008, ballot. With time
working against them, lawmakers agreed on a measure that scaled
back earlier initiatives, and even current reforms pushed by the
House.
What the current amendment includes:
Homestead exemption
The homestead exemption increases. The current $25,000 homestead
exemption remains; but a second $25,000 exemption is added for
home values between $50,000 and $75,000. The second $25,000 exemption
does not apply to school taxes, however, which translates into
a lower-than-expected savings of about $240 per homesteaded owner.
The portion of a home valued between $25,000 and $50,000 will
still be taxed at all levels. FAR fought to include this taxable
portion in order to maintain fairness for smaller cities and counties
with lower median home values.
Portability – Moving up
Property tax savings portability (money saved over time on property
taxes because of yearly increase limits through Florida’s
Save Our Homes amendment) applies to homesteaders (homeowners
with a homestead exemption) moving anywhere within Florida. Up
to $500,000 of accumulated savings, applied to taxable value,
may be transferred when one home is sold and another is purchased,
with the transfer applying to all taxes, including the school
portion. Homeowners have two years after they sell a home to buy
a new one and transfer the savings.
If buying a more expensive home, a homesteader calculates savings
by subtracting the assessed value (taxable value) from the just
value (market value). The amount (savings over time) is then subtracted
from the just value on the new home purchased. In most cases,
the $50,000 homestead exemption will also be subtracted.
Example: Susie currently owns a home and has lived there for
a long time. The house’s just value is $500,000, but because
of Save Our Homes, the assessed value is only $200,000. Susie
buys a new house for $700,000. The following year, she’ll
pay taxes on only $400,000, however, because she’s “porting”
$300,000 in value to her new home. After factoring in the new
homestead exemption of $50,000, her total assessed value would
be $350,000.
If buying a less-expensive home, the calculation changes and
is based on the percentage of tax savings rather than a dollar
amount. If the assessed value on the original home was 50 percent
of the just value, for example, the homesteader would transfer
that percentage to the new home, or have a new assessed value
that is 50 percent of the new home’s just value. The percentage
system was created to keep homesteaders from effectively eliminating
their property taxes altogether by moving from a high-cost area
of Florida to a low-cost area – a change that could severely
hurt smaller rural economies.
Example: Susie currently owns a home and has lived there for
a long time. The house’s just value is $500,000, but because
of Save Our Homes, the assessed value is only $200,000. Susie
buys a new town home for $300,000. She’ll pay taxes only
on $120,000 because when buying down in value, she’ll keep
the same ratio (40 percent) of assessed value to just value that
she enjoyed in her old home. After factoring in the new homestead
exemption of $50,000, her total assessed value would be $70,000.
Also, portability is retroactive to Jan. 1, 2007 – so everyone
who bought this year and moved from an established homestead will
be able to “port” their savings for next year. Since
yearly tax values are based on ownership as of Jan. 1 each year,
portability would not affect this year’s tax bills, which
most homeowners have already received; but the savings will be
applicable to next year’s tax bill.
Non-homesteaded property tax cap
A win for FAR and an important piece of the amendment is a 10
percent annual assessment cap on non-homestead property. Similar
to Save Our Homes, this cap limits the assessed increases of commercial,
rental and second home property taxes to a maximum amount of 10
percent per year starting in 2009, protecting against high spikes
in taxes from year-to-year.
While property values will not rise 10 percent every year, FAR
believes the cap offers some relief and protection to properties
in high-value markets and waterfronts from unpredictable tax increases.
The Constitution mandates a tax reassessment to just value upon
transfer for non-homestead residential properties of nine units
or less, but allows the Florida Legislature to determine how reassessment
will occur for commercial and higher-unit residential properties.
However, implementing legislation passed during the Special Session
provides for reassessment of these properties upon a change in
ownership or use.
Tangible personal property exemption
Under the amendment, the Tangible Personal Property (TPP) exemption
for businesses is $25,000. The Legislature estimates that this
tax – paid to local governments on items such as shelving,
desks, computers, and other office equipment – will exempt
about 1 million of Florida’s 1.2 million businesses that
currently pay it. The amendment also drops the requirement to
file for the TPP tax.
Work not done
While the proposed amendment will save property owners as much
as $12 billion (depending on the portability amount used), FAR
will work for greater relief measures. The association also has
serious concerns about a challenge to the constitutionality of
portability.
Earlier versions of property tax reform included provisions to
help first-time homebuyers, a move missing in the current version.
With that protection gone, FAR considers it possible that it will
be challenged under the U.S. Constitution along with the entire
Save Our Homes property tax system. If that happens, it could
bring everyone back to the table yet again.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
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