The Florida Save Our Homes Benefit is an important protection for Florida homeowners. It limits property tax increases due to increases in the assessed value of your home. Here’s how it works.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
What is the Save Our Homes Benefit?
Save Our Homes limits the increase in your property’s appraised tax value each year. The maximum increase is the lower of 3% or the annual change in the Consumer Price Index.
The Consumer Price Index, or CPI, is the most-used measure of inflation.
Who qualifies for Save Our Homes?
In order to qualify for Save Our Homes, you must have received the Homestead Exemption on your home. The Homestead Exemption is generally for a primary residence and provides additional tax benefits.
You can apply through the tax collector for the county where you are buying your home.
What is the difference between the Save Our Homes Benefit and Homestead Exemption?
Even though these two property tax benefits go together, they are part of two separate laws.
Save Our Homes limits increases to your property’s assessed value by limiting the percentage of the annual increase.
The Homestead Exemption excludes part of your property’s assessed value from property taxes. It works like the standard deduction for income taxes and subtracts a fixed amount from your assessed value.
What is an example of how Save Our Homes works?
Let’s say you have a $100,000 house and there was 2% inflation last year.
- The property appraiser says your house now appraises at $105,000.
- Under Save Our Homes, your appraised value can only go up by the lower of 3% or inflation (2%).
- 2% of $100,000 is $2,000.
- So even though your property appraises at $105,000, you only get taxed on $102,000.
If inflation was 10%, you’d use 3% as the maximum increase. So you’d get taxed on $103,000. It doesn’t matter if inflation is higher, because your appraised value can never increase by more than 3% if nothing changes but the market value of your home.
Does Save Our Homes limit tax increases?
Save Our Homes is not a tax cap or complete limit on tax increases. It does not limit changes in the property tax rates.
Your property tax bills can go up by more than 3% or the current rate of inflation if your local taxing authorities increase property tax rates.
Remember, there are two parts to property taxes. Property taxes = (assessed value) X (tax rate).
Save Our Homes only limits the bold part of the equation not the final answer.
Example (ignoring exemptions for easy math):
- Year 1: $100,000 assessed value X 2% property tax rate = $2,000 property taxes
- Year 2: $110,000 fair market value reduced to $103,000 by Save Our Homes. 3% property tax rate. $103,000 X 3% = $3,090 in property taxes. The protection only applies to the home’s value not the tax rate.
- Year 2 alternative (bigger tax rate increase): $110,000 fair market value reduced to $103,000 by Save Our Homes. 6% property tax rate. $103,000 X 6% = $6,180 in property taxes. The protection only applies to the home’s value not the tax rate.
- Year 2 alternative (tax rate increase with no change in value): $100,000 fair market value. 6% property tax rate. $100,000 X 6% = $6,000 in property taxes. Even though the home’s value didn’t change, your benefit doesn’t offset the tax rate increase.
What properties qualify for Save Our Homes?
To qualify for Save Our Homes, you must have the Homestead Exemption. This generally means a residential property that’s your primary residence where you’re applied for the Homestead Exemption.
Commercial property generally cannot qualify because it typically isn’t Homestead exempt property.
If you have a partial Homestead Exemption, Save Our Homes only applies to the portion with the exemption.
For example, a 50% Homestead property increases from $200,000 to $220,000.
- Half of the $20,000 increase is protected. Instead of the actual 10% increase, that half is limited to a 3% increase or $3,000.
- The other half of the $20,000 increase is unprotected. The entire $10,000 applies.
- You would pay property taxes on $213,000.
If you have an agricultural parcel with a home on it, it can also partially qualify for the Save Our Homes Benefit. The benefit applies to the portion of the property with the home but not the agricultural portion.
What happens when a property with the Save Our Homes Benefit is sold?
First, it’s important to understand the benefit only applies to real estate taxes not capital gains taxes.
For federal capital gains taxes, you’ll pay capital gains tax on the difference between the current full market value you sold your home for and what you bought it for. You may also be able to claim the home sale exclusion if you sold your primary home.
Florida does not have a state income tax or capital gains tax, so there is no state capital gains tax on the sale of a home.
SOH Benefit For the Seller
If you are the seller, you can generally transfer your Save Our Homes Benefit to a new home in Florida.
So if your benefit was lowering your appraised value by $100,000, you can lower your new home’s appraised value by $100,000 assuming you qualify for the Homestead Exemption on the new home.
SOH Benefit For the Buyer
If you are the buyer, the assessed value resets to the full market value. You do not get any benefits the seller may have had.
You may be eligible to use portability to transfer your benefits from a previous Homestead.
Don’t forget that the Homestead Exemption isn’t automatic. You have to apply through the property appraiser’s office when you buy a new home.
What happens when you make additions or improvements to your home?
When you make additions or improvements to your home, they’re assessed at full market value. So if you make $25,000 in additions, you pay property taxes on an additional $25,000 in just value.
Additions and improvements aren’t subject to the 3% limit when you make them, because it’s a change you’re making to your home rather than a chance in its as-is market value. In future years, additions or improvements are subject to the Save Our Homes cap.
You have a home with a $100,000 assessed value and make $25,000 in improvements during the year. Assuming the maximum increase for next year, your home’s assessed value goes up $100,000 X 3% + $25,000 or $28,000.
Your new assessed value is $128,000. Next year, the maximum increase is $128,000 X 3% or $3,840.
What happens when you get married?
If you get married and one spouse owns a home with the Save Our Homes benefit, you can generally add the other spouse to the title without losing the benefit. Normally, a change in title resets the assessed value to the full market value.
If you are buying a new home and both had a benefit from your previous home, you generally get the higher of the two benefits. You don’t get to combine both benefits.
Talk to your local property appraiser’s office and/or a property tax accountant before attempting this. If you do it wrong, you may lose your tax savings.
What happens when you get divorced?
When you get divorced, each spouse can generally transfer their portion of the benefit. It works similarly to the usual portability rules when you sell a home or buy a new one.
For example, you have a $100,000 benefit. The spouse that keeps the home can keep $50,000 on the home, and the other spouse can transfer $50,000 to a new home.
This should be included in your divorce agreement. Talk to a divorce lawyer, property appraiser’s office, and/or property tax accountant to make sure you do everything correctly.
What happens if you move to a smaller (lower value) home?
If you downsize, you can only transfer part of your benefit. For example, if you buy a home that’s worth half as much as your old home, you can transfer 1/2 of your benefit to the new home.
This should often not be the only reason you choose not to downsize.
- First, your Homestead exemption is likely to make up a greater portion of your new home’s value since it’s a fixed amount.
- Second, you’re still likely paying taxes on a lower assessed value.
- Finally, your overall home maintenance and utility expenses will likely be lower.
When deciding if downsizing is a good financial move, be sure to consider all of the financial impacts not just that you might lose part of your Save Our Homes benefit.
However, if you intend to downsize temporarily and then move back to a home closer to your original home’s value, the higher benefit has a larger potential value. You need to consider any temporary cost savings against what the benefit would be worth if you kept it.
What happens when market values fall?
Assessed values can sometimes still rise even when market values fall. This is due to the recapture rule.
Even if market values fall, your capped value may still be less than your home’s market value. This happens when the annual increases in your home’s market value have exceeded the Save Our Homes Cap.
For example, your home rose in value over several years from $100,000 to $150,000. With save our homes, your capped value is $125,000. Next year, your home’s value falls to $145,000. Your assessed value will still increase 3% of $125,000, or $3,750, to $128,750.
The recapture rule applies any time your capped value is less than the market value.
If market values fall below your capped value, your capped value decreases to the new market value.
For example, your home rose in value over several years from $100,000 to $150,000. With save our homes, your capped value is $125,000. Next year, your home’s value falls to $100,000. Your assessed value will drop to $100,000. The year after that, property prices go back up. However, your maximum assessed value will be $103,000 ($100,000 plus 3%).
Where can you get help?
Your local property appraiser’s office is a good source of basic information. They can help you calculate your potential taxes and answer basic questions about how to apply for exemptions and benefits.
The property appraiser’s office may not be able to help you with complex situations and may not be liable if they give you incorrect information. For things like multiple unmarried owners, a change of ownership, or other unique situations, contact a property tax lawyer or accountant.
Real estate agents are not tax advisors and are generally only familiar with the basics of the most common situations.
You do not need to file a property tax return each year. The property appraiser calculates your taxes automatically. If you disagree with the assessed value, you can dispute it directly through your local tax collector or with the help of a lawyer or accountant.
Never rely on what the current property owner is paying in taxes to determine your potential tax bill when buying a home. Most county tax collectors have a tax estimator that shows what a new buyer would pay after any benefits on a home reset.
Don’t forget that your SOH benefit can save thousands of dollars in taxes each year over the decades you own your home. If in doubt, get professional help to get it right.