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What are property taxes, how are they calculated? How Can you lower your tax bill?
What’s homestead exemption, what’s the Save Our Homes Assessment limitation?
Property taxes are taxes paid by an individual or entity to the local government for owning a property. Every property in the United States is taxed.
In the state of Florida property taxes are two parts:
ad-valorem and non ad-valorem, which means respectively according to value and not according to value.
Non Ad-Valorem Tax
The non ad-valorem tax is the tax collected to fund departments such as Fire department, Garbage, Light, Drainage, Improvement or Safe Neighborhood Assessment and that’s usually split equally across the number of properties in a specific city. It's usually the lesser amount of the 2 taxes.
Ad-Valorem Tax
The ad-valorem portion is collected to pay for schools, county & city government operating expenses, water management, hospitals and many other services available in the county & city. It is calculated by multiplying the property assessed value by the city’s assigned millage rate.
The property's assessed value is usually equal to the purchase price, when the property is purchased.
The millage rate is the percentage rate taxed by the city. In Broward County for 2022, It ranges between 17.4 to 22.2 mills. That 1.74% to 2.22%.
For example, if you’re buying a $500K property where the city’s millage rate is 20 mills, that’s 2%, the ad-valorem tax is:
$500,000 X 2%= $10,000.
An itemized tax bill for every property is available on the county website.
How to lower your tax bill?
That's where exemptions can lower your tax bill.
Homestead Exemption
Homestead exemption is an exemption you file with the county the property is located in, and can be claimed on only one property. The one you live in. It lowers your tax bill by lowering the assessed value by up to $50,000.
So again, with the same example if you’re buying a $500K property where the city’s millage rate is 20 mills, that’s 2% which is $10,000 a year, with full homestead exemption, the assessed value is 500K- $50K = 450K X 2% that’s $9,000.
That’s a $1,000 savings a year.
Other Benefits for Homestead Exemption:
Save our Homes Assessment Limitation
But the biggest advantage of homestead exemption is the Save our Homes Assessment Limitation. It’s a limitation on how much can the taxes increase every year. it’s limited to 3% a year or the percent change in the Consumer Price Index (CPI) whichever is less.
Millage rates and property value tend to increase over time, but the SOH limitation will keep your tax bill cheaper in 5 years if you buy the property today as opposed to buying it in 5 years.
Homestead creditor protection
Another benefit is the Homestead creditor protection is a unique benefit to Florida residents. Article X, Section 4 of the Florida Constitution exempts homestead property from levy and execution by judgment creditors. In other words, a creditor cannot force the sale of one's homestead to satisfy a judgment.
Additional Exemptions
Additional exemptions are available by county. Such as the Low-income Senior’s additional exemption for applicants over 65 and making less than 35,167 (in Broward). Veteran’s disability Exemption, deployed military exemption, disabled persons and many others.
Portability
'Portability' in Florida refers to the ability of a property owner to transfer some or all of the 'Save Our Homes' benefit on a previous homestead to a newly established homestead. A homeowner must have a Homestead Exemption in place on their current residence to qualify for Portability.
Usually there are calculators on the county website where you can estimate the savings.
Deadline for filing
You have until March 1st of the year of purchase to file for homestead exemption, if you buy the property before March 1st. If you purchase the property after March 1st, you'd have to file for the next year. Typically you need a proof of Florida residence and a proof of ownership. You can check the county website for more details or reach out for more info.
For more info about specific counties, please reach out to eli@mxmtg.com
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