One of the most advantageous yet confusing features of Florida residency is the homestead exemption. You’ve heard how you can greatly reduce your property tax by applying for the homestead tax exemption. However, the effects of homestead in Florida go a lot further.
There are actually three aspects to the Florida homestead law:
the tax exemption which reduces the taxable value of your real property by up to $50,000 and which includes the "Save Our Homes" Amendment,
the exemption from forced sale by creditors, and
the restrictions on transfer of homestead, both during your lifetime and after your death.What Property Is Homestead?
Must Be Owned By a Natural Person.
This means that the property must be owned by an individual or individuals. Corporations, limited liability companies or other business entities cannot qualify for homestead exemption. If you wish to qualify for the homestead exemption, you cannot title your home in the name of a corporation (even if you are the only stockholder), a family limited partnership or other business entity. You may however own your home in a revocable trust, provided that you are the trustee of the trust and also a beneficiary of the trust and either you or your family resides on the property. The homestead can also be owned by a husband and wife as tenants by the entireties and in the form of a life estate.
How Large Can My Homestead Be?
Your property must be located in Florida. If you live outside of a municipality (or city) the size of your property may not exceed 160 acres. If you live within a city’s limits your homestead is limited to one-half acre. If you purchase a home of 160 acres outside a municipality and the property is later incorporated into a municipality, your homestead may not be reduced unless you consent.
This means that all parts of the homestead property must abut or be touching. If the parcel is divided by a state or county road, or by a body of water not owned by the owner of the homestead property, the parcel is not contiguous and only the part where the owner actually resides is considered to be homestead. An easement across the property, however, will not keep the parcel from being contiguous. If you later purchase a piece of land which is contiguous to your existing homestead, it may qualify for homestead status. For example, if you purchase the vacant lot next to your homestead, it will become a part of the homestead, provided it is contiguous to the original property and both properties together do not exceed the size limitations.
It Must Be Your Residence
You or your family must reside on the property for it to be considered your homestead. The definition of family in this instance may include more than the traditional family. Family, in this context, includes those who you are legally obligated to support, those who you actually support, and your spouse.
Before we tackle these aspects, we need to determine what property qualifies for homestead treatment. Article X, Section 4 of the Florida Constitution defines homestead property as property owned by a natural person, "if located outside a municipality, to the extent of 160 acres of contiguous land and improvements thereon, … or, if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or the owner’s family." Say what? O.K., let’s break this down to come up with some standards to use to identify homestead property.
The qualifying resident must be a resident of Florida; however you need not be a United States citizen since citizenship is not necessary for permanent residency. The property must be your principal and permanent residence. You cannot treat the property in any other manner than as your permanent residence. For example, if you rent out your property for a portion of the year, it will no longer qualify as homestead property.
The Homestead Tax Exemption
The first benefit of being a resident of Florida and owning homestead property is the homestead tax exemption. Every county in Florida levies an ad valorem property tax on all real property in the county. This tax is calculated by multiplying the taxable value of the property (as determined by the county property appraiser) by the millage rate (as determined by the local taxing authorities such as the county commission, city council, school board and special taxing districts). The homestead exemption reduces the taxable value of your homestead property by $25,000, resulting in a reduction of ad valorem taxes on your home. In January, 2008, the citizens of Florida approved Amendment 1 to its state constitution and created an additional homestead exemption of $25,000 to lower the taxable value of homestead property for all taxes except those levied by school districts. The exemption applies 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.
As an example, let’s look at the taxes on a hypothetical piece of property, first without the homestead exemption and then with the exemption.
Without Homestead Exemption:
Assessed Value $100,000
No Homestead Exemption $ 0
Taxable Value $100,000
Times Millage Rate (.010)*
Times School Millage (.008)*
Tax Due $ 1,800
With Homestead Exemption:
Assessed Value $100,000
Less Homestead Exemption $ 50,000
Taxable Value (General Tax) $ 50,000
Times Millage Rate (.010)*
Tax Due $ 500
Taxable Value (School Tax) $ 75,000
Times School Millage (.008)**
Tax Due $ 600 Total Tax Due $ 1,100
* The millage rate of .018 (18 Mills) has been arbitrarily chosen to illustrate the effect of homestead exemption. The rate will vary from county to county and from year to year.
** Additional homestead exemption does not apply to taxes levied by school districts
As you can see, the homestead exemption gave you a savings of $700 in the above example. The savings may be more or less depending on the millage rate set for that year in the county.
The "Save Our Homes" Amendment
Probably even more valuable than the homestead tax exemption is the "Save Our Homes" Amendment to the Florida Constitution. This amendment, passed in 1992 by the voters of Florida, limits the annual increase in the taxable value for homestead property to a maximum of 3% each year.
Each year, the county assesses the taxable value of all real property on its tax rolls. As a result of the amendment, the taxable value of property that qualifies for the homestead tax exemption may increase no more than 3 percent of the prior year’s assessment or the percentage change in the Consumer Price Index, which ever is less. Of course, the taxable value can never exceed the just valuation (or market value) of the property.
The Market Value of your property increases based on the economic conditions and sales prices of other properties in your area. In some areas of Florida in the years between 2002 and 2006, the market value of some properties increased 20% or more each year for consecutive years. As a result, properties that were originally valued at $300,000 were worth almost $450,000 a couple of years later. You can imagine the increase in property taxes resulting from this.
However, if the $300,000 property was the owner’s homestead, the increase in taxable value was limited to 3% per year. As a result, the taxable value of the property 2 years later would not be greater than $318,270, even though its Market Value was $450,000. This translates into a huge savings in property tax.
The amendment provides that after any change in ownership or any new qualification for homestead tax exemption, the homestead property shall be taxed at the just value as of January 1 of the year following the change in ownership. The amendments limits will apply each year following. So if you move to Florida, become a resident and qualify for homestead status, your property will be re-assessed on the first day of the year after you qualify for homestead at its just value with no limitations on the increase. Each year thereafter, the increase in taxable value will be limited by the amendment. For this reason, you should move into a new home and apply for the homestead exemption prior to the end of a calendar year so the initial reassessment takes place earlier. This causes the 3 percent cap to take effect a year earlier than if you waited until after the first of the year to apply.