Amendment 1 to Florida's Homestead Law
Wednesday, October 29, 2008 at 09:50AM
In January, 2008, the citizens of Florida approved Amendment 1 to its state constitution and changed the property tax system in Florida.The amendment has four major provisions:
1. Increased homestead exemption.
2. Portability of the Save Our Homes benefit.
3. $25,000 tax exemption for tangible personal property.
4. 10% annual cap for non-homestead property.
Increased Homestead ExemptionAn additional exemption of $25,000 was created to lower the taxable value of homestead property for all taxes except those levied by school districts.
The exemption will apply on the assessed value of the homestead property that exceeds $50,000. This means that, if the just valuation of your homestead property is $100,000, the first $25,000 of value and the assessed value between $50,000 and $75,000 would be exempt from taxes. However, the value between $50,000 and $75,000 would still be used to determine the amount of school tax.
Portability of the Save Our Homes BenefitUnder Save Our Homes, the assessed value of homestead property cannot increase more than 3% each year. Previously, if you sold your homestead and bought a new home, the taxable value of the new home would be equal to the just valuation. All of the benefits you accrued in your old home under the Save Our Homes amendment would be lost. As a result, some new homeowners suffered a large increase in property taxes even though the market value of the new home was not greater than that of the old one.
Now, under Amendment 1, you can transfer some of the Save Our Homes benefit to your new home.
If the market value of your new home is the same or greater than your old home’s market value, the entire difference between market value and taxable value will be applied to your new home.
This is explained by the following illustration:
Market Value Taxable Value Difference
Old Home 300,000 200,000 100,000
New Home 400,000 300,000 100,000
The market value of your old home at the time you sell it is $300,000. You have lived in it for 12 years and the taxable value at the time of sale is $200,000, creating a difference of $100,000. The market value of your new home at the time you purchased it is $400,000. Amendment 1 allows you to transfer the $100,000 difference from your old home and therefore the taxable value of your new home starts at $300,000. Prior to Amendment 1, the taxable value of the new home would have been equal to the market value: $400,000.
If the market value of your new home is less than that of your old home, you will not receive the entire difference. Instead, the new home’s difference will be the same percentage of its market value as the old home’s difference is of the old home’s market value.
Market Value Taxable Value Difference
Old Home 300,000 200,000 100,000
New Home 200,000 133,334 66,666
In this example, the old home’s Save Our Homes difference is 33.3% or 1/3 of its market value. The new home’s difference would be 33.3% of its market value, or $66,666. Therefore, the taxable value of the new home would be $133,334.
Under Amendment 1, if you establish a new homestead and, (1) qualify for the homestead exemption by January 1 of a particular year and, (2) you had a homestead exemption on your old home in either of the two immediately preceding years and, (3) you apply for the homestead exemption and Amendment 1 transfer (of the difference) by March 1 of the particular year, then you will be able to transfer all or part of the difference (see examples above) to your new home.
When you apply for the exemption on your new home, you will have to include a copy of your notice of proposed property taxes on your old home and sign a sworn statement that you are entitled to the assessment reduction.
$25,000 Tax Exemption for Personal Property
The third part of Amendment 1 is a $25,000 exemption on all tangible personal property such as machinery, furnishings, fixtures and equipment. This will provide a small relief for businesses who get nothing from the homestead exemption increase and Save Our Homes portability.
According to the National Federation of Independent Business, about 1.3 million businesses file tangible personal property tax returns in Florida, paying an average of $450 per year. This provision will also benefit landlords as the exemption will apply to furniture and appliances in rental properties.
One type of taxpayer who will benefit from this exemption is the mobile home owner. More than 1.1 million Floridians currently live in mobile homes or manufactured housing parks and communities. The tangible personal property tax for those living on a leased lot in a community is levied against their porches, sunrooms, storage rooms and carports. With the $25,000 exemption, most of them will no longer pay any tax at all.
10 Percent Cap for Non-Homestead PropertyPart 4 of Amendment 1 provides a ten percent cap on annual increases in the assessment of non-homestead property, both residential and non-residential.
Owners of second homes and rental property endured the largest property tax increases over the past several years. Some of the most urgent lobbying for property tax relief came from owners of second homes.
Despite these factors, they will only receive modest relief under the new law. According to Florida Tax Watch, an independent watchdog group, single year increases in taxable value generally fall below 5 percent, making the 10 percent cap “so high as to be of little value to most properties.”
Many people involved in these issues believe that Amendment 1 is only a start. Because of Governor Crist’s commitment to tax relief, it seems likely that many of the deficiencies in the law will be addressed by the legislature and the Governor in the near future.