Property values in Florida are on the rise. As such, portability of the homestead tax exemption for a primary residence is a hot topic. Homestead portability allows an owner of homestead property to “port,” or transfer, all or part of his or her Save Our Homes exemption from an old homestead property to a new homestead property. But, what exactly does that mean?
In Florida, the value of real property is assessed by a county property appraiser on January 1st of each year and annual real estate taxes are imposed based upon that assessed value. Market conditions dictate the market value of real property. Expectedly, as real estate markets rise, the market values of real property rise which in turn increase the real property taxes assessed by the county property appraiser. However, one of the key benefits of Florida’s homestead exemption is the Save Our Homes (SOH) assessment limitation set forth under an amendment to the Florida Constitution. This limitation prevents the county property appraiser from increasing the assessed value of homestead property more than 3% per year, or the percent change in the Consumer Price Index (CPI), whichever is less. The difference between the current fair market value of homestead property and the SOH value represents the accumulated homestead exemption tax savings.
The significant real estate tax savings under the SOH benefit has undoubtedly helped many homeowners stay in their homes, especially as the market value of their homes increases. However, it also tended to deter homesteaders from moving to new residences for fear of losing their accumulated homestead exemption tax savings. In 2008, Florida voters changed that by amending the Florida Constitution to allow for “portability” of their accumulated homestead exemption tax savings from old homestead property to new homestead property thereby lowering the tax assessment on their new residences.
In order to port SOH benefits to new homestead property, you must satisfy two requirements. First, you must establish your new homestead residence within 2 years of abandoning your previous homestead property. Second, you must file a Transfer of Homestead Assessment Difference (Form DR-501T) with your homestead application for your new residence by March 1st of the year you intend to establish homestead on such residence.
Under the portability law, you may port up to $500,000 accumulated homestead exemption tax savings to your new homestead. For example, if your current homestead is worth $450,000 but valued at only $250,000 under the SOH assessed value, you would have an amount of $200,000 accumulated homestead exemption tax savings. If you were to move into a new homestead property worth $500,000, the $200,000 accumulated homestead exemption tax savings would be ported to your new homestead. Consequently, your new home would be assessed at no more than $300,000 in the first year, with subsequent increases limited to 3%, or the percent change in the CPI, whichever is less.
On the other hand, if you downsize, the amount of accumulated homestead exemption tax savings that you may port will be limited to the assessed value of your previous home divided by its market value. For example, if your current homestead is worth $500,000 but valued at $300,000 under the SOH assessed value, and you were to move into a less valuable homestead property, the new home will be assessed at 60% ($300,000/$500,000) of its market value the first year, as long as the accumulated homestead exemption tax savings is no greater than $500,000.
Calculating the homestead assessment difference can be complicated. Accordingly, the Broward County Property Appraiser has a Portability Estimator on its website to assist in calculating your homestead assessment difference. It is important to keep in mind that porting your homestead is not automatic and the timing is critical as the necessary documentation must be filed by March 1st. Nonetheless, the tax savings can be considerable. Should you have any questions regarding porting your homestead, or should you need assistance in filing the necessary documentation, please contact our office to speak with an attorney.