Florida’s Homestead Rules—The Best Benefit under the Sun (Part 1)
Last month, I detailed steps you can take to establish residency in Florida (found here). In the next few installments of my Snowbird Series, I will review Florida’s homestead laws so you can see how they might apply to your situation. Homestead is one of the most frequently misunderstood aspects of Florida law.
The first aspect of Florida Homestead I will discuss is the reduction in assessed value available to homestead properties, which usually results in greatly reduced property tax bills. Later in the series, I will discuss two less well-known but extremely important aspects of Florida’s homestead rules—protection from creditors and restrictions on transfer.
Qualifications for Florida Homestead
To qualify for homestead in Florida, you must demonstrate that you resided in the Florida home that is the subject of your application as of January 1 of the year you apply. The application deadline is March 1.
How to file for Homestead in Florida
To file for the homestead exemption, your property appraiser may ask you for proof that you are a bona fide resident homeowner in the State of Florida and therefore qualify for the exemption. You will need to prove:
- Your identity, with documents such as your driver’s license, state-issued ID, vehicle registration, voter registration, etc.
- Where you live, with items such as utility bills, declaration of domicile, or proof that you have claimed the home at issue as your home address in other filings such as tax returns.
- If you are moving to Florida from another state, you may need to prove that you have given up residence in your former state in favor of moving to Florida. For example, if you previously resided in Michigan but want to claim a Florida homestead exemption, you may need to prove that you have given up your Principal Residence Exemption in Michigan.
It is a good idea to contact your county property appraiser’s office prior to filing your homestead application. Often, the clerk can provide you with a list of items required.
If your Homestead Exemption is granted, what do you get?
If your Florida homestead exemption is approved, you are entitled to a reduction of $25,000 in the assessed value of your home. Most homesteaders also qualify to receive an additional $25,000 reduction in assessed value from all levies other than those for schools.
While receiving a deduction on the taxable value of your homestead is always a good thing, some clients have difficulty conceptualizing the benefit. While the initial reduction of $25,000 or $50,000 in value may not seem significant when compared to the value of the home, the initial reduction in taxable value is only the beginning of the benefit.
Here is a simplistic view of how this system works. Each year, the county property appraiser will determine an assessed value for the home. If exemptions are approved, they are reduced from the assessed value, resulting in the taxable value. The appropriate millage (tax rate) is applied to the taxable value to determine the tax due.
If the property is homestead, the property appraiser may only increase the assessed value of the home by the lesser of 3% or the percent change in the Consumer Price Index (CPI), even if the actual value of the home increased substantially more. Over time, if the value of the home goes up due to changes in supply and demand or even due to inflation, the built-in benefit of the “cap” on the assessed value of the homestead increases.
Here is an example tax assessment record from a homesteaded property which demonstrates the benefit of the “cap” on increases in assessed value. This is over-simplified, but is intended only to demonstrate the concept.
|Year||Assessed Value (increases capped at 3%)||Exemptions
|Taxable Value||Fair Market Value||Delta between
Taxable value and actual value
In the example above, in Year 1 the property appraiser assessed the property at a value of $500,000. If we subtract $50,000 of exemptions from the assessed value, we reach a taxable value of $450,000. The following year, the market value of the house increased to $550,000. Because the house was homestead, the assessed value of the home could only be increased to $515,000 (the 3% cap), resulting in a new taxable value of $465,000 (assessed value minus exemptions). In Year 2, while the actual value of the house increased by $50,000, the assessed value increased just $15,000. Because these benefits aggregate each year, you can imagine how the tax savings compounds over time.
Many clients also wonder what happens if they decide to move—to upsize, downsize, or simply to move to another neighborhood. Fortunately for those who want to remain Florida residents but move to a new home, Florida will allow you to bring your existing homestead benefit with you.
If you move from one homestead property to another, you can “port” your accumulated property tax cap benefit to your new home rather than forfeiting it. To apply for this benefit, you must reside in your new homestead property by January 1 of the year you intend to qualify, and then you must go to your new property appraiser’s office and file the appropriate paperwork to file for your new homestead property and “port” your homestead exemption by the March 1 deadline.
I hope that this helps demonstrate the tax savings available through claiming the Florida homestead exemption. For those who make Florida their home for many years, this is an amazing benefit.
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