Many times tax reps, real estate agents, and neighbors will hear the complaint “Why am I paying more in taxes than my neighbor and I own the same model house as he/she does?” Here is the explanation…
As I have said before, real estate taxes are based on the assessed value of the property, NOT the market value. The goal for real estate owners is to have an incredibly high market value (what a buyer is most willing to pay for your property) and an incredibly low assessed value (what our taxes are based on).
The higher the assessed value, the higher the taxes and vice versa. Typically in Florida, the assessed value is a high percentage of the market value unless the property has a Homestead Exemption or a special classification like the Agricultural Classification. The Homestead Exemption prevents the real estate assessed value from increasing any more than 3% per year. In addition a very important note to make here is the market value cannot be lower than the assessed value. As the market value decreases, typically so does the assessed value.
So the best way to explain the long term effects of the Homestead Exemption is to show the effects in an example.
Two homes, A and B are the same model, on the same amount of land, and on the same street, yet homeowner A pays more in taxes. We first must know the history of sales which is typically recorded in public records.
Doing a bit of research reveals property owner B purchased the property in 2005, right before the market collapse. He paid say, $500,000 for it then. Then in 2007/2008, the housing market plummeted and the home was worth only half of what he paid for it. Luckily for the homeowner, the property was Homestead in 2005, providing an assessment cap. Now that the property was capped-in, the assessed value can only go up 3% a year.
Since the property was halved, the assessed value in 2008 became $250,000 only to increase 3% a year. Now in 2017, the assessed value is about $326,000. By getting the mileage rate (let’s say 20 for the sake of this example) the taxes would be $6,520.
Now we move on to property B. The home owner purchased the property in 2013 for $400,000 which was the assessed value as well. Still less than what owner A paid. Home values continued to increase until the present value. The homeowner B Homestead the property and now has an assessed value of about $450,200 (the assessed value went up 3% a year). Homeowner B pays about $9,000 in taxes using the same mileage rate.
Here is another little known fact: if you want to lower your real estate taxes, you really need to prove your market value is less than your assessed value. Remember, taxes are based on your assessed value, not market value. The rule in Florida is, the assessed value of the property can’t be higher than the market value. So if you assessed value is very low, and the market value is really high, you basically have very little chance of proving this concept.
There you have it. There can be other factors involved such as special classifications like an Agricultural Classification or other exemptions the homeowners may have qualified for, etc… The lesson to take away from this particular example, all variables the same with the exception of the time of purchase can make a huge difference in real estate taxes in Florida.