John S. Murphy Real Estate Agent Patrick AFB, FL (321) 775-8090 Contact Profile
One question that I will inevitably get asked when showing homes to a customer is, "What are the property taxes going to be on this property"? It seems like there should be an easy and straightforward answer. After all, the listings on the local MLS and national websites have the current property taxes displayed prominently. One would assume that the taxes would be around that figure. That could be a very expensive assumption.
Due to various constitutional amendments and laws, I feel Florida has created one of the most convoluted and confusing tax systems in the US. Any experienced Realtor can give you a very rough estimate on the spot, but allow them to do a little research and the real pros will be able to give you a pretty accurate estimate. If you want to know more about this subject please read on. But let me warn you, this is not for the novice or those that become bored easily. These will be precious minutes of your life that you will never get back.
Ok, you have been warned, let us proceed with caution.
First a few terms you need to become familiar with:
Mill - One one-thousandth of a United States dollar.
Mill - One one-thousandth of a United States dollar.
Millage Rate (Tax Rate) - Is set by the local communities and currently ranges from 15.08 to 20.49 in Brevard County and is multiplied by the taxable value / 1000 to come up with the property tax.
Homestead Exemption - is a special property tax exemption on your primary residence, not on a second home or investment property. Currently the exemption is $50,000 for all non school related taxes and $25,000 for school taxes (I'll explain this in more detail later). New home owners must file for this exemption at the latest between January 1st and March 31st in the calendar year following the purchase of their home. After filing for the exemption, as long as there are no changes to the deed or eligibility status, the exemption will automatically renew every year.
Save Our Homes (SOH) - Florida amended its constitution in 1992 with an amendment known as Save Our Homes. What it did was to put a "cap" on the annual increase of the assessed value of a homesteaded property at a maximum of 3% or the Consumer Price Index whichever is lower.
Market Value - As the local property appraiser's website states, "Market value is the most probable selling price, based on the actual sales of similar properties, less the typical costs of sale." This number is not what the home will sell for, and in my experience has very little to do with real world costs and values, since this number is figured out once per year and market conditions typically change throughout the year. It is a starting point for figuring out the property tax.
Assessed Value - From the property appraiser's site, "The assessed value may be less than the market value if the property is a residential property having homestead exemption and is therefore protected by the "Save Our Homes" Constitutional assessment limitations." What. I go into more detail later.
Taxable Value - " The
taxable value is the assessed value less any applicable exemptions" (Homestead, and a few other special exemptions, I won't go into). This is the value that they multiply the millage rate to come up with your property tax.
So why would the current property tax listed on the MLS be different than what you will eventually pay. It depends on two factors: How long has the seller lived in the house and if it is the primary residence of the seller.
If the seller has been living in the house for many years their assessed value is artificially low. Why? Because of the Save Our Homes amendment of 1992. As the value of property in Brevard County shot up, especially between 2003-2005 (72%), their assessed value could only go up 3% a year. If this is their primary residence, they also have their homestead exemption applied to the assessed value to come up with the taxable value. When the house is sold, the home is reassessed at the market value and then the assessed value and market value will be the same. If you plan on using the home as your primary residence you can file for a homestead exemption and then your taxable value will become the assessed value minus this exemption. In this scenario you taxes will be higher than what is listed on the MLS.
If the home is not a primary residence of the seller and you plan on using it as your primary residence, more than likely the taxes will be lower than what is listed on the MLS. Why? Because the seller has not had the Save Our Homes protection and the assessed value has fluctuated naturally with the market. Also, since the seller cannot use the homestead exemption on the property and you will qualify for the exemption, your taxable value will be lower than the sellers.
Has your head exploded yet? If it hasn't, the next paragraph definitely will cause cranial detonations.
In January of 2008 the people of Florida made another change to their constitution with Amendment 1. One part of the amendment was to "double" the homestead exemption from $25,000 to $50,000. I believe that many homeowners thought that it would make a big difference in their tax bills. But the devil is in the details. It did provide a $50,000 exemption on parts of the tax bill that are not school related and kept the $25,000 exemption on the school portions. The unfortunate thing is that the school portion of the tax bill makes up the majority of the property tax bill. So in reality people are only saving a few hundred dollars. Silly, silly Floridians.
There are other things I won't go into like, Non Ad Valorem taxes and "portability" because if you are still reading this, anything more might push you over the edge.
This is just a thumbnail sketch of a multitude of scenarios that can take place. As complicated as this appears, a true Real Estate Professional, given a little time, can give you an accurate tax estimation for your new home.
By John S. Murphy Real Estate Agent with RE/MAX Elite
Posted on September 18, 2008 08:41 AM