Florida Real Estate Taxes Retain Dual-Class System

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If you live in the state of Florida, you pay taxes on your home according to a dual-class tax system. There's one type of tax system for those who live in Florida as their primary residence and another for those who live there part-time or own vacation property. And it's a good thing, too: Considering the rocky Florida real estate market, those who stick it out year after year deserve a break.

Recently, the state's Supreme Court refused to hear a challenge to this system, which means the appeals court decision that ruled this dual-tax system constitutional will stand. The dual-tax system became law after a constitutional amendment called "Save Our Homes" passed in 1992 and took effect in 1995.
The way this tax system works is that if you own a home in Florida and claim a homestead exemption, which means you declare the home as your primary residence, your annual property tax assessment cannot increase by more than 3 percent. If your neighbor next door is a snowbird (lives there in winter to avoid cold weather), his property appraisal can go up at the same rate as the housing market.

Also, those who buy after prices have risen dramatically, even after a homestead exemption, will still pay taxes based on the higher market rate at time of purchase. But their neighbors who live there for five to 10 years or more, before the price jump, could have significantly lower tax appraisals.

During the boom years, that created differences of $100,000 or more in market value, because long-term residents with homestead exemptions saw only 3 percent raises each year, while their neighbors could see increases of 10 percent more as the housing bubble inflated. Tax bills based on those property appraisals varied greatly, with part-time Florida residents and vacation homeowners getting tax bills that increased by $500 to $1,000 each year.

Newly minted Florida residents also suffered because their initial appraisal was set at the price they paid for the house; so even if they claimed a homestead exemption, that 3 percent yearly cap started at a higher level.

The bursting of the housing bubble evened the playing field. For example, my neighbor bought his home in 2007 near the top of the bubble. Even though his home is about 100 square feet smaller than mine, his property was appraised at $100,000 more than mine because he bought it at the top of the bubble and I bought it about four years earlier. He's a snowbird, so he didn't claim a homestead exemption. With the higher property value and the lack of a homestead exemption reduction, his tax bill was about a $1,000 more than mine in 2008.

That wasn't true in 2009. Due to declining values, the property assessments for all properties dropped dramatically and property appraisals flattened for both primary residents and snowbirds. My neighbor's property is now appraised slightly lower than mine. As the housing market recovers, that difference in property values likely will reappear if house prices begin to go up by more than 3 percent a year, which of course everyone in Florida wants to happen.

Even though I didn't see as big a drop, my house is worth less than I paid for it. Housing prices in Central Florida are now back to levels not seen since the start of this century.

A challenge to the law was filed by four recently arrived Floridians, who saw that their neighbors' property appraisals were much lower than theirs. Even residents who claim a homestead exemption could pay taxes based on much higher property values if they buy into a community whose prices have jumped dramatically.

Talbot "Sandy" D'Alemberte, a lawyer for these taxpayers, argued that "Save Our Homes" discriminated against newcomers and those who own other types of property, such as second homes and businesses. In addition to "Save Our Homes," the taxpayers also challenged Amendment 1, which took effect in 2008 and allowed longtime Florida residents to take their tax breaks with them through "portability" if they bought another home in Florida.

D'Almberte told The Associated Press that this case should be taken to the U.S Supreme Court, but he hasn't discussed the case with his clients. He was not available for comment for this story. Two other cases challenging this law are pending before the Florida Supreme Court, but since it rejected this case most expect those to fail as well.

Longtime Floridians will still have an advantage over newcomers when the Florida real estate market recovers. In fact, now that prices have dropped more than 40 to 50 percent in some areas, their advantages could be even greater when Florida's market comes back. Between the hurricanes, the Gulf oil spill and the ever-fragile Florida real estate market, those who stick it out for the long run deserve a medal of valor.

Lita Epstein has written more than 25 books, including "The 250 Questions Everyone Should Ask About Buying Foreclosures."
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