BUYING REAL ESTATE IN FLORIDA: WHAT DO YOU NEED TO KNOW ABOUT TAXES?

 BUYING REAL ESTATE IN FLORIDA: WHAT DO YOU NEED TO KNOW ABOUT TAXES?

The various laws governing property taxes in Florida can sometimes be difficult to understand. The amount you pay depends on several factors. If you're considering purchasing real estate in Florida, whether as an investment or a life project, it's important to understand how taxes are calculated.

With the real estate market constantly evolving, Florida property values fluctuate. As a house or apartment changes hands, its value can change dramatically, as can its assessed value. Therefore, it's essential to understand the factors that affect the amount of taxes you pay.

In addition to market rates, property taxes will also depend on the tax rates charged by various local governments. Real estate is necessarily subject to taxes from several different agencies, including county and city governments, the school district, the hospital district, and the water district. Additional taxes may also apply in some urban communities.

It is also important to know that property tax exemptions and the "Save our Homes" amendment help limit the amount of property tax payable.

County Taxes in Florida

The amount of county property tax varies depending on the value of the property in question. However, it also varies depending on the county tax rate and the owner's residence within the county. Within a county, regions are organized differently, with some having lower property taxes than others.

For example, a property owner in Temple Terrace, parts of New Tampa, or downtown Tampa will likely pay more property taxes than an owner of the same property in Lutz or parts of New Tampa.

Generally, the cheapest areas are those that are not incorporated into municipalities, simply because they are not subject to the "urban" tax.

Community Development Tax

In Florida, residents living in a metropolitan area or development district typically pay additional taxes. These taxes allow developers to provide amenities designed to improve the lives of residents. By sharing the cost of community development and land among residents, it's possible to develop amenities such as a recreation center, park, walking trail, and other sports facilities.

Depending on the community, the tax is divided into two parts:

The first is obligatory and concerns a fixed amount, payable for a fixed period.

The second varies from year to year depending on the community's needs and budget. Any investor considering purchasing real estate in Florida should research in advance how much residents pay each year, as the amounts vary considerably depending on many factors.

It should also be noted that this tax is tied to the property, not its owner. This means that if a property is sold, paying these taxes becomes the responsibility of the new owner.

A property owner should be able to pay the bond portion of the Community Development District Tax on their own property. This reduces the amount owed each year to provide funds needed to maintain the community.

Property tax exemption for family properties

Under the homestead exemption , any legal Florida resident can deduct $25,000 from the assessed value of their principal residence. In addition, certain categories of homeowners (e.g., the elderly, veterans, the blind) are also eligible for other exemptions.

Please note: The $25,000 homestead exemption is not granted automatically. To qualify, you must purchase real estate in Florida before December 31 and apply for the exemption by March 31 of the following year.

Since January 9, 2008, eligible Florida property owners are also eligible for an additional $25,000 exemption under Amendment 1. This exemption is automatically granted to any property owner who applies for it and whose initial exemption petition is approved.

To summarize:

The first $25,000 of real estate is for the initial exemption;

The remaining $25,000 is fully taxable. This measure allows Florida cities with low property values to continue collecting the revenue they need to run local government;

The third $25,000 tranche concerns the new exemption provided for in Amendment 1. It is exempt from all taxes, except the school tax. The objective is to allow schools to continue receiving the funding they need to operate.

The "Save Our Homes" Amendment

The "Save Our Homes" amendment (sometimes abbreviated as SOH) limits the rise in land prices in Florida. Assessed at 3% or calculated based on the Consumer Price Index, a maximum percentage increase is set, guaranteeing any homeowner who benefits from a homestead exemption that the assessed value of their property will not increase by more than 3% per year.

The SOH protects current Florida homeowners. However, it does not apply to non-residents or individuals whose Florida property is not their primary residence.

Furthermore, the assessed value cap is automatically lifted when the property changes hands. Therefore, those looking to buy real estate in Florida are advised to rely on the market value of the property at the time of sale, rather than the tax assessment of the previous owners. Indeed, it's possible that the assessed value of the home may be artificially low, especially if it has been owned by the same owner for many years.

The application for exemption from property and automatic protection linked to the law on individual houses (the famous SOH) must be requested by the owner.

Transfer of SOH exemption

Amendment 1 also changed the way the SOH works. Under this amendment, it is possible to transfer part of the SOH to a new property, provided that the eligibility criteria are met.

A little history to better understand...

Before Amendment 1, a homeowner who had lived in the same property for several years enjoyed a very attractive property tax benefit, as the assessed value of their home was capped. However, while they received a property tax reduction, they were more or less tied to the property, as simply moving out would result in a significant increase in property tax.

Amendment 1 changed this, and Florida homeowners can now transfer their SOH protection to a new property. However, to receive the tax benefit on their new home, they must apply within two years of purchasing their new Florida property.

The SOH transfer also applies to individuals who own multiple properties in Florida, as it is possible to transfer the protection from one property to another. Note, however, that this protection only applies to a primary residence. Therefore, to benefit from the SOH transfer, the owner must change their primary residence. As such, it's important to know that Florida authorities take a hard line with those who consider abusing the SOH, and the penalties are severe.

The amount of the transfer, in turn, depends essentially on the difference in value between the old and new real estate.

Ceiling relating to other real estate

Under Amendment 1, there is also a valuation cap for non-residential properties. This is a 10% cap limiting the increase in value of residential and non-residential properties other than the main residence. These mainly include commercial premises, holiday homes, and unoccupied land.

Since January 1, 2008, all non-residential properties have been assessed at market value only. However, the increase in property value from one year to the next is capped at 10%. In addition, the taxable value of the property cannot exceed the market value.

This essentially means that the assessed value of non-residential properties is equal to the market value, regardless of how the Florida real estate market performs.

Exemption of material goods

Another rule related to Amendment 1 concerns the $25,000 exemption for tangible assets. To qualify, business owners must file a TPP return by April 1 of the year they wish to claim it. Assets include all items the business owns and/or leases to operate.