CONSIDER MOVING UP
Florida retirement residents have in a sense been held hostage for years. Florida has several inducements encouraging retirees to establish residence. First and foremost is warm weather. That speaks for itself. Next is the absence of state income tax. And finally there is the “Homestead’ exemption on property taxes. This is the topic on which this article will be focused.
Full time Florida residents are eligible to declare “Homestead” on their full time residence. The impact of this is that the first $50,000.00 of appraised value is exempt from property tax. In addition property taxes cannot be raised more than 3% in any given year. For longtime residents this sizeable tax benefit made trading up very difficult. On top of the additional property investment purchasers were faced with increased property taxes for the remainder of their life. This is no longer the case. Thanks to the passage of Amendment 10 this benefit can now be transferred to a new residence.
PORTABILITY: Currently, property owners with a homestead exemption receive a benefit known as Amendment 10 or Save Our Homes cap. This Save Our Homes benefit works by limiting the increase of the assessed value of a home to a maximum of 3% regardless of any increase in market value. Under the new law, homeowners will be allowed to transfer this benefit to the next homestead property. This is called portability or a portable cap. Qualified applicants are now able to transfer (or port) this Save Our Homes benefit up to $500,000, whether they are buying a more expensive or less expensive home.
Homestead property owners will be able to transfer their Save Our Homes benefit (up to $500,000) to a new homestead property within two years of giving up their previous homestead. If the market value of the new homestead is more than the previous home’s market value, the entire Save Our Home benefit can be transferred up to $500,000; if the new homestead has a lower market value, the amount of the accumulated benefit that may be transferred is proportional to the value of the new homestead property.
Obviously the most important consideration in moving up is the cost of that upgrade. I will use hypothetical examples based in reality. Let’s consider a property that 3 years ago was worth $300,000.00 and the considered upgrade was $500,000.00 or an increased cost of $200,000.00. Now let’s assume that values have declined by 40%. The current residence is now worth only $180,000.00. The common response is “I won’t accept this lower value”, “I will wait until the market recovers.” The numbers however bear out a different scenario. To make the same upgrade now would only cost $120,000.00. This completely ignores other favorable factors.
- Portability allows property tax benefits to transfer to the new residence
- Establishing the new property at reduced values keeps the base low.
- Current values for Fort Myers, FL real estate are so low that investment makes sense for long term appreciation.
The facts all indicate that this is indeed a unique opportunity to upgrade and at the same time make a long term investment that is sure to grow over time. The purchase of a principal residence creates quality of life and is a solid secure long term investment. These favorable conditions will not last. Investors around the world have jumped off the fence and on to this opportunity. Real estate transactions have set records for the last three months in a row and records indicate that more than 60% of these transactions have been cash deals. Nobody has a crystal ball but there is solid evidence that we have reached bottom and recovery is underway. I encourage you to act and take advantage of this anomaly in the market.