PortABILITY: The 4th Real Estate-Related Term of 2008

“Take what you can. Take what you can!”, I heard someone shout softly at my voting precinct, Iglesia Bautista de Renovacion (Baptist Church of Renovation for you English-speaking heathens), last Tuesday.

I guess.

By now, Amendment One is so last week’s news. Britney was released from UCLA Medical Center while “in the throes of a mental health crisis”, the Eli Manning-led NY Giants won the Super Bowl, Andy Petitte talked to the House (he tried HGH only twice – no for real, he was recovering from an injury) and Kazaam was handed a one-way ticket to the desert.

In the meantime, A Miami Real Estate Blog was busy at work adding a 4th real estate-related term to the 2008 list.

A MIAMI REAL ESTATE BLOG: Ladies and gentlemen, it is with great pleasure that I introduce to you

[Drumroll.]

A MIAMI REAL ESTATE BLOG: Portability!

[The crowd rises to its feet.]

PORTABILITY: Thank you, thank you…thanks…too kind. Please, please…have a seat. [Pause.] I want to, first and foremost, thank YOU all for your support. Thanks for showing up in droves and making all of this possible.

[Deafening applause.]

PORTABILITY [after a short pause.]: I’d like to specially thank Governor Crist for indoctrinating his tireless efforts. Without him, there is no me.

CROWD [in unison]: Charlie, Charlie, Charlie, Charlie…

[GOVERNOR CRIST, tickled pink and seated to PORTABILITY’S right, stands and acknowledges the crowd.]

GOVERNOR CRIST [in a soft whisper meant to be lip read, not heard]: Thank you. Thank you.

PORTABILITY: Due to the exhaustion caused from the overwhelming support, I will not be answering any questions today. I have chosen a publicist, A MIAMI REAL ESTATE BLOG, to do the talking for me.

A MIAMI REAL ESTATE BLOG: Portability has been with us for about 9 days now. My apologies for not introducing him sooner. I felt that we needed to get to know each other a little bit better before I introduced him to the masses. As he mentioned seconds ago, he’s a little weary from the traveling and endless campaigning, so I’ll be doing most of the talking for him.

If you received a Homestead Exemption in 2007 on a Florida home that you sold or abandoned during 2007 and purchased a new home in Florida that served as your primary residence as of January 1, 2008, you are eligible to take some or all of the benefit (up to $500,000) of Save Our Homes (Amendment 10) to your new home. The Save Our Homes benefit is the difference between the Market Value and the Assessed Value of your (previous) homestead property.

Portablity Example

Let’s say that Danny Adejo owned a homestead property in an unincorporated area of Miami-Dade County in 2007 in which the following scenario applied:

2007 Market Value: $331,281
2007 Assessed Value: $178,848
– Homestead Exemption: $25,000
2007 Taxable Value: $153,848

2007 Millage Rate: $18.5679
2007 Property Tax Amount: $2,856.63

Save Our Homes Benefit: $152,433

(Please keep in mind that in order to simplify things, I am not including non-ad valorem assessements like garbage/trash removal, recycling, fire fees, etc. in the examples.)

Mr. Adejo purchased a new property in unincorporated Miami-Dade County in June 2007. The sale price of the new home was $385,900. Since Mr. Adejo occupied the home as his primary residence as of the assessment date (January 1, 2008), he qualifies for a Homestead Exemption. As a result of Amendment One’s enactment, he also qualifies for portability in 2008. His new scenario (assuming that the Miami-Dade Property Appraiser will assess the property at the same amount as the purchase price) is as follows:

2008 Market Value: $385,900
2008 Assessed Value: $385,900 – $152,433 (Save Our Homes Benefit) = $233,467
– Homestead Exemption: $25,000
– 2nd Homestead Exemption: $25,000
2008 Taxable Value (non-school district): $183,467
2008 Taxable Value (school district): $208,467

2008 Total Millage: $18.5679
2008 School Millage: $7.6078
2008 Non-school Millage: $10.9601

2008 Property Tax Amount: $2,010.82 + $1,585.98 = $3,596.80

(The 2007 millage rate was used for the 2008 example.)

Let’s take a look at Mr. Adejo’s scenario had Amendment One not passed last week:

2008 Market Value: $385,900
2008 Assessed Value: $385,900
– Homestead Exemption: $25,000
2008 Taxable Value: $360,900

2008 Millage Rate: $18.5679

2008 Property Tax Amount: $6,701.16

Wow! As a result of Amendment One’s portability opportunity, Mr. Adejo will save $3,104.36 in property taxes in 2008 in his new home.

Hold on. Before you pop the Veuve Cliquot in celebration,

veuve.jpg

let’s take the scenario one step further. Mr. Adejo did not sell his former homestead property in 2007. Instead, he decided to keep it as a non-homestead investment property.

Assuming that the Miami-Dade Property Appraiser’s Office makes no change to the market value of Mr. Adejo’s non-homestead property for the 2008 tax roll and that the 2008 millage rate remains the same as 2007’s, the scenario will look as follows:

2008 Market Value: $331,281
2008 Assessed Value: $331,281
2008 Taxable Value: $331,281

2008 Millage Rate: $18.5679

2008 Property Tax Amount: $6,151.19

Ouch! That’s a 215% increase in property taxes for the non-homestead property. Instead of saving $3,104.36 in property taxes in 2008, Mr Adejo is actually in the red $190.20:

$3,104.36 (taxes saved from portability in new homestead property)
– $3,294.56 (increase in taxes in non-homestead property)

Why did Mr. Adejo’s property taxes rise by astronomical proportions at his non-homestead property in 2008?

Well, for starters, Amendment One just didn’t go far enough in addressing property taxes for non-homestead second homes, investment properties, commercial properties, vacant land, etc. You can see that the tax burden in the preceding scenario (which, by the way, is a real one) was just shifted from one property to the other.

Yes, had Amendment One not passed, Mr. Adejo would be facing two stiff property tax bills instead of one.

Interlude: I don’t know about you, but $3,596.80 in property taxes doesn’t exactly sound like a bargain to me – portability or no portability.

That’s not the point, however. Mr. Adejo decided to keep his former homestead as an investment property and provide quality housing to a qualified tenant. The chances of Mr. Adejo breaking even, let alone having a positive cash flow in the non-homestead property due to the large property tax increase, is slim to none. The rising costs of property taxes, as well as property insurance, have literally washed away the rental economics of owning residential investment property in South Florida.

Mr. Adejo is forced to make a decision sooner rather than later. Continue to hold on to the property despite a negative cash flow in a “declining market” (it’s official) or attempt to sell the property in an already crowded real estate market.

Transferring Save Our Homes Benefit to Your New Home

If you qualify for portability in 2008, you must apply for a Homestead Exemption with the Property Appraiser’s Office by March 3, 2008. In addition, you must also submit a Portability Application Form (DR-501T) to the Property Appraiser’s Office by March 3, 2008.

If you have already applied for a Homestead Exemption on your new home, you must still complete the Portability Application Form by March 3, 2008 in order to benefit from portability.

Someone looking to transfer his/her Save Our Homes benefit from a previous homestead located in a different county, needs to fill out a Certificate for Transfer of Homestead Assessment Difference (DR-501R) with the Property Appraiser’s Office in the county in which the new homestead is located.

Additional $25,000 Homestead Exemption

All persons currently receiving a Homestead Exemption and who continue to live in the same (primary) residence will automatically qualify to receive the additional Homestead Exemption. You need not apply for the new Homestead Exemption.

10% Assessment Limitation on Non-homestead Property

2008 will serve as the base year (first year) for the 10% limitation on the assessed value of a non-homestead property. Owners of property subject to the 10% assessment limitation will need to apply with the Property Appraiser’s Office on or before March 1 of each year beginning in 2009. As it currently stands, the 10% limitation will not renew itself like the Homestead Exemption. You must apply each year in order to qualify. Applications are not yet available for the 10% limitation.

For more detailed information on Amendment One, visit the Florida Department of Revenue’s website.

If you prefer to speak to a human voice (I think), feel free to call me at 305.491.7179.

Adrian Salgado is a Realtor Associate with RED I Realty in Miami, FL and can be reached at 305.491.7179 or SalgadoA@gmail.com.

7 Comments

Filed under Portability, Property Taxes, Real Estate Terms

7 responses to “PortABILITY: The 4th Real Estate-Related Term of 2008

  1. Silvia Barreto

    Great explanation,
    I’ll pass it on, Good job🙂

  2. Adrian Salgado

    The one, the only Ms. Silvia Barreto everyone! One of Miami-Dade’s finest.

    Or is it Mrs. _ _ _ _ everyone?

  3. Excellent example. It shows that this amendment will not solve anything and will actually add to the confusion. Something need to be done about the property taxes. You do know that many prospective buyers backtrack when you tell them about the property taxes they should expect to pay.
    Thanks for this explanation. Best regards.
    FD @ Condo Hotel South Beach

  4. Adrian,

    Do you know if a cancellation form still has to be filled out for the prior homestead property or is the portability form sufficient?

  5. Alex G,

    There is a question on the Homestead Exemption application that reads:

    “Did you file for tax exemptions last year?”

    If you claimed a Homestead Exemption on another property last year make sure you answer yes for that question and provide the previous address in the space provided right below the question.

    That will prompt the Property Appraiser’s Office to remove the Homestead Exemption from the former property before they apply a new one to your new home.

  6. Oh it did one thing cut the budget for emergency services and schools.

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