Florida Homestead Exemption

Florida Homestead Exemption

Keys Homeowners Save on Property Taxes

Key Westers and visitors rang in the New Year with festivities that were bright and busy despite a few minor omissions and restrictions. The weather was perfect as usual, there were more than enough special events to fill the evening, and the city’s diversity of iconoclastic “drops” went off without a hitch. Now that things are quieting down a bit after the holidays, thoughts may be (reluctantly) turning to tax time. Here is an important tax strategy for Key West property owners.

Action Item for New Key West Homeowners

Did you purchase a property in Monroe county and make it your primary home in 2021? March 1, 2022 is the filing deadline for the Florida Homestead Exemption, a valuable benefit available to all bona fide Florida residents who own and occupy a primary residence in the state. Note that applications are taken by appointment only at the local office of the Monroe County Property Appraiser, 500 Whitehead St. in Key West, so it is best to call soon at 305-292-3420.

Nearly every U.S. state has some version of a homestead exemption provision, with the primary purpose being to protect homeowners from losing their residence to creditors of various types. The details, application requirements, and level of financial protection offered can vary widely by location, and this is where the advantage of Florida property becomes apparent.

Homestead property is offered unlimited protection from unsecured creditors in Florida, with the only restrictions being lot size — up to ½ acre for residences within a municipality and up to 160 acres outside a municipality. Condominiums, mobile homes, and manufactured homes as well as single family homes are covered, and there are no restrictions regarding the square footage of the primary physical residence, but the protection is prorated for lots that exceed the size limitations.

The Homestead Exemption has been a provision of the Florida State Constitution (Article X, Section 4) for many years. It was originally designed to help and encourage people to move down to Florida during the early property boom years before the arrival of air conditioning. People could move down from another state and buy Florida property without fear that creditors and judgements from their former home state would follow and attach to a Florida primary residence.

In modern times, the homestead exemption is particularly useful as protection for professionals who may be at risk of a lawsuit judgement. It can also be a boon to surviving spouses who may be left liable for medical or other debts.

A Nice Break on Property Taxes

Besides protection from creditors, it is important to note that homestead exemption also refers to property tax benefits in the form of a $50,000 assessed value exemption, which generally equates to a discount of about $1000 per year on property taxes. And it is important to recognize the value of homestead status as a control on annual property tax increases associated with increases in your home’s Assessed Value.

The 1992 Florida State Constitutional Amendment 10, known as Save Our Homes (SOH), (Section 193.155, Florida Statutes) caps Assessed Value increases at the lesser of 3% or the yearly percent change in the Consumer Price Index as published by the U.S. Bureau of Labor Statistics. This cap is in place after the first year the homestead exemption is received and the property appraiser assesses the home’s fair market value.

When a homestead property is sold or otherwise changes ownership, or the homestead exemption is lost or removed, market value will be reassessed and the SOH benefit will be removed until a new application for homestead exemption is submitted. An exception to this is when a home is transferred between spouses (including on dissolution of marriage) or to the owner’s natural or legal dependents. 

Other than failure to reapply upon ownership transfer, common reasons for losing a homestead exemption include renting the property out, taking an out-of-state residency-based tax exemption on another property, maintaining or obtaining a driver’s license in any other state, not registering your vehicle in Florida if you drive it here, and registering to vote elsewhere.

Also note that Homestead Fraud—filing a false homestead exemption if you are not a permanent resident of Monroe County residing on the exempt property—can result in having a tax lien placed against the property, being charged back taxes for up to 10 years, and paying a penalty of 50% of the unpaid taxes for each year plus 15% interest per year (Florida Statutes Sections 193.155 (9) & 196.161).

Benefits for Second-Home Owners

Owners of second homes in the Keys should be aware of the Non-Homestead Cap. This is a 10% cap on yearly increases in the assessed value of any real property that is not eligible for a homestead exemption. The cap is automatically applied to all Non-Homestead property by the Appraiser’s Office and there is no application required. However, the cap does not apply to the School Board portion of property taxes, which are always based on 100% of the home’s fair market value. Note that, whether a property is homesteaded or not, assessed value may increase (up to the cap limit) even if market value does not increase, but assessed value will never exceed fair market value.

In cases where owners eventually make a second home into their primary residence, the Non-Homestead cap is lost at that time and the year in which a Homestead Exemption is applied for becomes the new base year. The Assessed Value is reappraised and reset to the current fair market value. It is also relevant here to recognize that Florida Homestead Exemption has implications for estate planning, for example trusts and wills, and for prenuptial agreements. “Floridizing” such plans and documents is the advised course of action for folks who are changing their permanent residence to Florida.

Make the Move in 2022

The Florida Homestead Exemption is one of the less-obvious perks of buying a home in Key West, but it is an essential piece of strategy for the new homeowner down here.

After producing over $118 million in closed sales for 2021, the team at Bascom Grooms Real Estate is looking forward to a great 2022. Is this your year to buy a home in tropical paradise? Ready to sell and upgrade or downsize your existing Florida Keys home? We are your trusted local partner for Key West real estate and properties throughout the Lower Florida Keys.