It is that time of the year and we have just received the notice of proposed property taxes for our various properties in Florida.
Florida's homestead law complicates the real estate tax situation. Florida's homestead law provides protection against forced sale of one's primary home. One of the reasons O.J. Simpson lives (or lived, he is in jail at present) in Florida is because of the generous protections from creditors provided for one's primary dwelling no matter how big or expensive.
For our purposes the homestead law provides a tax exemption from our real property taxes. A family with a homestead property receives a $50,000 tax exemption for all real property taxes except for school taxes (for which $25,000 of that exemption applies). So a family with a home valued at $200,000 would only pay taxes on $150,000 of the value and $175,000 for the school district taxes.
Even more important though is the protection provided against the rate at which taxes can increase from year to year. For a Florida homestead property, the rate at which taxes can increase is 3% or the rate of inflation which ever is less. For 2012 that increase is 3%. So, that means, when we receive our proposed taxes for our primary home there are two numbers for our home, the assessed value (which is the market value for our home and land less the $50,000 homestead tax exemption) and the taxable value. The taxable value can only rise by a maximum of 3% year over year and that is the number we pay taxes on. For our Florida investment properties the assessed value and the taxable value are the same and there are no exemptions.
While the Florida real estate bubble deflation has been hard on our net worth, the upside (gotta look on the bright side) has been that the assessed value went down on all of our Florida properties, which means that our real estate taxes and overall carrying costs have gone down. Now that property values are starting to edge up we have the 3% tax rate cap protection for our primary home so it will be quite few a years untill we are paying taxes at the level we were paying back in 2007 and 2008 (at least on our primary home).
For some long time Florida home owners, during the recession their real estate taxes continued to go up because there was such a huge gap between their assessed value and taxable value. For folks like us, landlords to three Florida properties and our primary home was purchased in 2004 our real estate taxes have come down to be similar to the rate that the long term residents of our neighborhood pay. We live in a very eclectic area so the disparity in real estate taxes is not as glaring as newer construction areas, where you could have, during the boom time, two identical sized homes with one owner paying $4000 in real estate taxes and the other non-homesteaded resident paying $8000 in real estate taxes.