NEW FLORIDA HOMESTEAD AND PROPERTY TAX LAW

“Amendment One” Criticized And Controversial

Florida voters this year approved Amendment One, a significant change to Florida’s “Save Our Homes” (“SOH”) assessment cap. It was promoted as an attempt to stimulate the real estate market in Florida and to deal with perceived unfairness in the taxing scheme. Amendment One does three primary things: (1) it raises the homestead exemption from $25,000 to $50,000, (2) it allows you to transfer the SOH benefit cap associated with your present exemption to a newly purchased home (this is known as “portability”); and (3) it offers some relief for nonhomestead property.

The most significant of the changes is portability of your exemption from one home to another. This benefit applies to homes sold in 2007 or later, as long as the homeowner purchases a new home within two years. Unlike many other provisions of Amendment One, portability is also applicable to school taxes. The method of calculating the benefit conferred on a newly purchased home depends on whether it costs more or less than the prior homestead. With a more expensive newly purchased home, the assessed value differential from market value that can be transferred is the difference between the former home’s market value and the SOH assessed value, not to exceed $500,000. For example, if a former homestead had a value of $1,000,000 but an assessed value of $500,000, the $500,000 differential may be transferred to the new home. If the new home cost $1,500,000, its initial SOH assessed value should not exceed $1,000,000. If, however, the existing homestead was sold for $1,500,000 and had an assessed value of $1,000,000, and the new home cost $1,000,000, a ratio must be determined and is applied to the differential between the old home’s value and SOH assessed value. The ratio is the value the new home bears to the value of the old home or two-thirds $1,000,000/$1,500,000 (66.67%) in this example. This ratio is applied to the differential between the assessed SOH value ($1,000,000) and the market value ($1,500,000) of the old home (a differential of $500,000). Thus, the preserved SOH that can be transferred to the new home, of lesser value, is $333,350 (66.67% of the $500,000 differential). Note: The higher the market value the more differential that can be transferred to the new home, creating a second matter of potential contest with the property appraiser’s office.

Amendment One also added an assessment cap for non-homestead real property. It is not applicable to certain tangible personal property, which affects some business real property more so than others. The cap is set quite high (10%), and does not apply to school taxes, so few may actually benefit from it. Non-homestead real property is broken-down into two groups for purposes of permitting a reassessment over and above the cap. If non-homestead residential property (9 or fewer dwelling units or residential land) is involved, a change of ownership or control (a change of more than 50% of the ownership of an entity that owns the property) will result in a reassessment. With business or investment property (including nonresidential land and rental properties with more than 9 dwelling units), either a change of ownership or control, or an improvement that increases the value of the property by at least 25%, will result in resetting the assessed value. The legislation implementing this law requires a property owner seeking protection under this non-homestead cap to file an application before March 1st of each year, but significant penalties are provided if you are not entitled to the cap. In light of the minimal potential benefit and penalty exposure, most would be advised not to apply for protection.

Lastly, Amendment One provides a $25,000 tangible personal property exemption for businesses. The exemption can generally be used on a per county basis if a person has operations in multiple counties, thus potentially substantially increasing the exemption. Certain property, however, is excluded for this purpose.