Excerpt from Chapter 4, Estate Planning and Asset Protection in Florida: A Plan to Survive Unexpected Financial Threats by Barry A. Nelson. Available at http://www.jurispub.com/Bookstore/Regions-Jurisdictions/Estate-Planning-and-Asset-Protection-in-Florida.html. Use discount code BAN10 for a 10% discount!
Chapter 4 - Table of Contents
4-1 Introduction
4-2 Exemptions and Save Our Homes Benefits - General
4-3 S Corporation Not Entitled to Homestead Property Exemption
4-4 Qualified Personal Residence Trust (“QPRT”) Qualifies for Homestead Property Tax Exemption
4-5 Must Receive Homestead Exemption Before Receiving Benefit of Save Our Homes Cap
4-1 Introduction
Chapters 2 and 3 analyzed the asset protection benefits of Florida homestead and its qualification rules. This chapter describes Florida property tax exemptions and limitations on annual increases in homestead valuations based upon Florida’s Save Our Homes Constitutional Amendment. Chapter 5 describes restrictions on a homestead owner’s ability to gift or devise a homestead under Florida law. Each of the three homestead provisions: (i) asset protection, (ii) property tax benefits and (iii) restrictions on a homestead owners ability to alienate or devise the homestead are governed by separate provisions in the Florida statutes as well as in the Florida Constitution which must be considered together to avoid unanticipated results. Planning to achieve homestead benefits for asset protection without understanding the potential increase in property taxes or limitations on the owner’s ability to alienate or devise a homestead can result in disastrous property tax increases addressed in this chapter or unenforceable Will and trust provisions, as described more fully in the following chapter.
4-1.1 What are the General Requirements for Homestead Property Tax Benefit?
Every person who owns real property on January 1 and makes the real property his or her permanent residence or the permanent residence of a legal or natural dependent and files an application in a timely manner with the local property tax assessor may qualify for a homestead exemption to reduce property taxes. In addition, beginning for the year after homestead status is obtained, increases in the assessed value of the homestead are capped based upon the Save Our Homes Cap. Moreover, a homeowner moving from one homestead within two years can take (“port”) some of the benefits of the Save Our Homes Cap to his or her next Florida residence through “property tax portability.”
4-1.2 What are the Greatest Traps for the Homestead Owner for Property Tax Purposes?
Once a homeowner secures the homestead exemption for property tax purposes, he or she gets two benefits. The first is an annual property tax exemption, typically a reduction of up to $50,000 of the assessed value. However, a significantly greater tax benefit is the Save Our Homes Cap that resulted from a 1992 amendment to the Florida Constitution which became effective in 1995. The Save Our Homes Cap limits the increase in annual property assessments to 3% (or, if less, the CPI index increase for such year) of the prior year’s assessed value. Over time the actual fair market value of a homestead could be significantly greater than the assessed value for Florida property taxes because appreciation of more than 3% per year is not reflected in assessed value. The difference in the assessed value and fair market value resulting from the Save Our Homes Cap is reflected on property tax bills. If a homeowner benefiting from the Save Our Homes Cap transfers title of his or her homestead to a new owner, including partnerships, LLC’s, corporations and certain trusts, even if such business entity is owned 100% by the homestead owner, the homestead exemption will be lost as well as the Save Our Homes Cap. The resulting property tax bill can be vastly higher.
4-1.3 What are the Biggest Traps for Professionals in Advising Homestead Issues for Property Taxes?
As reflected in Chapter 2, an attorney advising a homestead owner to convey a homestead to a business entity or a non-qualifying trust will subject the owner to loss of homestead status for asset protection. In addition, such title change is likely to result in increased property taxes due to loss of the homestead exemption for ad valorem tax purposes and Save Our Homes Cap. An attorney making a recommendation to convey title of a Florida homestead to a partnership or other business entity resulting in the loss of the Save Our Homes Cap can find themselves in a malpractice suit with damages based upon the value of the loss of the homestead exemption for ad valorem tax purposes and Save Our Homes Cap over the lifetime of the property owner who made the homestead transfer.
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Disclaimer: This information has been prepared for educational purposes only and is not offered, nor should be construed, as legal advice. Use of this information without careful analysis and review by your attorney, CPA, and/or financial advisor may cause serious adverse consequences. We provide absolutely no warranty or representation of any kind, whether express or implied, concerning the appropriateness or legal sufficiency of this information as to any individual’s tax and related planning.
