Florida law provides for property to be assessed at full market value for taxation purposes, an amount known as the “just value.” It is regularly noted that property is generally assessed at approximately 85 percent of market sales figures, an amount which reflects cost of the transaction.
So if you purchase a property for $800,000, it would be reasonable to expect it to be assigned a just value of approximately $680,000. Absent applicable tax exemptions, you would pay ad valorem taxes on the $680,000 value, an amount known as the “assessed” value.
Starting with a constitutional amendment known as the Save Our Homes Amendment, which became effective in 1995, homesteaded property owners in Florida are able to “cap” the assessed value of their homestead property.
The property appraiser may not increase the assessed value of the property year-over-year by more than three percent or the change in Consumer Price Index, whichever is less. As the just value of the property increases over time, the assessed value remains capped, and the resulting difference between just value and assessed value is the cap savings amount.
Revisiting our original example, you purchase a new home for $800,000, and that property is given a just value of $680,000. Five years later, the property has a just value of $900,000, but the assessed value has increased to only $750,000 due to the homestead cap. The difference between the just value and the assessed value represents the cap savings, in this example $150,000.
In 2008, a new constitutional amendment provided for the portability of the homestead cap savings, up to a maximum of $500,000. Under the new law, a homesteaded property owner may now transfer their full cap savings to a new homestead, provided the new homestead has a just value that is equal to or greater than the just value of the current homestead property. If the new homestead has a lower just value than the current homestead, the cap savings are prorated.
Returning to our example, if you were to purchase a new home after five years for $1,200,000, you might reasonably expect it to be assigned a just value of $1,000,000. Without portability, the property would be assessed at $1,000,000, and then capped moving forward. However, because you are now able to port your cap savings to the new home, the property would be assessed at $850,000 ($1,000,000 just value minus $150,000 in ported cap savings). The assessed value of the property would then be capped moving forward, with the $850,000 assessed value as the base.
The result of this legislative framework is that homesteaded property owners often receive no property tax ramifications as the just value of their home increases. Once the homestead cap has been applied, increases in just value will generally not affect the assessed value.
Regardless how high the just value increases, the assessed value (the portion that is taxed) can only be increased by a maximum of three percent, so it is typically unaffected by increases in just value. Because of this, in certain circumstances, it may be beneficial to have a higher just value assigned to the property.
What some property owners have begun to realize is that increasing the just value of their homestead property can increase their cap savings, which may be advantageous if they ever intend to move their homestead to a new property.
Sometimes the county property appraisers’ just values may lag behind market values, particularly in situations where market values are increasing rapidly. As such, it may be beneficial in some instances to ensure that Property Appraisers have full just value assigned to the homestead property.
In fact, property appraisers across the state have actually begun to see property owners filing Value Adjustment Board petitions seeking to increase the just value of their homestead property above the just value assigned by the property appraiser.
Back to our example. After five years your property has increased in just value from $680,000 to $900,000, but the assessed value remains capped at $750,000. This has created a cap savings of $150,000. Now what if the market value of your home is actually $1,000,000, and not the $900,000 just value that has been assigned. If you are able to seek an adjustment from the Property Appraiser to bring the just value to $1,000,000, then you would increase your cap savings from $150,000 to $250,000 without increasing your assessed value for taxation purposes. Now when you buy your new home for $1,200,000, and it is assigned a just value of $1,000,000, you have $250,000 in cap savings to port to the new home. The resulting assessed value of the new home is capped at $750,000 instead of $850,000. Over time, an adjustment like this could save tens of thousands of dollars in property taxes.
The decision as to whether or not to seek an upward adjustment to the just valuation of your homestead property is highly fact dependent and should only be made with the advice of legal counsel. The lawyers at Blalock Walters stand ready to assist if you think this is something that may be applicable to your situation.