A homeowner asks, “How do I go about cancelling a homestead exemption if I have moved into a residence that already has a homestead exemption?”
This is a great question! You actually do not want to cancel your homestead exemption, but rather port, or partially transfer it to your new Florida homestead. By doing so, you will be able to take whatever home savings you have in your current homestead and apply them to your new homestead. Remember, property taxes are paid in arrears, meaning they are paid at the end of the year and that is why you get your bill in November.
Porting Your Homestead Exemption
The county property appraiser’s office where you are moving to will have a Homestead Exemption Form called DR-501and an accompanying portability form, or Homestead Assessment Difference Form named DR-501T, that you can use to port your Homestead Exemption. Once the property appraiser establishes the homestead, the assessment for each following year cannot increase more than 3% or the Consumer Price Index (CPI), whichever is less, per the Save Our Homes (SOH) cap. There is an accumulated difference between the assessed value and the fair market value of your home, and that is the SOH amount you can port, or partially transfer, over. The process of moving this SOH differential (or benefit) from one property to another is referred to as Portability. So even if your home decreases in value, the assessed value may increase by this limited amount. However, the assessed value will never be more than the just/market value of your home. The assessed value is usually only about 80-90% of the just/market value of your home. In metropolitan areas, that percentage may be lower. In other words, do not use the property appraiser’s value of your house to tell you what your home is worth. It will be too low (except in extraordinary circumstances like a recession).
Why Porting Your Homestead Exemption by March 1 Is Important
As you may have noticed, the payment for your taxes becomes larger each month it is not paid, regardless of the exemptions you have on it. If you pay your taxes for the current year in November, you receive a slight discount. If you pay by their due date in March, you pay the full amount. There are late charges and the potential to lose your home if you pay them too late or never pay them. The property is reassessed each year, in person by a property appraiser every 4 years. So if you purchase anytime on or before December 31, your taxes are based on that year. If it is already homesteaded, you get to pay that year’s assessment. However, you have to apply for homestead or port your prior home’s homestead exemption by March 1 of the following year.
Let’s look at an example. You buy a new home on June 1, 2021. The taxes are homesteaded for 2021 with the seller. You apply for homestead on August 1, 2021 and your 2022 property taxes are based off of the $25,000 single person homestead exemption, or $50,000 married homestead exemption. Your 2022 taxes may or may not be lower than your 2021 taxes. We will not know those numbers until they assess the property’s fair market value based on 2022 numbers. While you own it, taxes cannot increase over 3% annually as long as it is homesteaded. If you fail to apply for homestead, your property taxes will definitely go up and can rise as high as 20% annually. This is why you will see an investment property just next door to a 15-year owner homesteaded property with vastly different property tax payments, and why we realtors are always reminding you to apply for homestead.
Bank appraisals only happen once, when the home is bought with a loan and the lender requires an appraisal. A private bank appraisal is different from the county property appraiser’s annual assessment for tax purposes. So many people don’t realize the difference. Just the other day someone asked me why they’re only paying taxes on $200,000 (the property appraiser’s assessment) when they bought their home for $250,000. I explained that it’s better to pay taxes off of the property appraiser’s assessment rather than the just/market value.
Portability Window Expanded in 2020
During the November 2020 election, voters approved a referendum to expand the portability window to three tax years. The information below should give you a better understanding of this change to Florida law (effective January 1, 2021).
- Time limit to port the SOH benefit to a new homestead property is 3 tax years from January 1st of the last qualified homestead exemption, not 3 years from the date of sale. Note that a sale late in a year could reduce the qualifying time window down to as little as 2 years in a worst-case scenario (sale closing on last day of the year). The intent of this legislation was to always provide a transfer window of at least a minimum of 2 years to align with voter perception from when portability originally passed in 2008.
So let’s say you sell your homestead property in any month in 2021. The homestead exemption remains with that property until December 31, 2021. As the last qualified homestead exemption was January 1, 2021, you now have until January 1, 2023 to qualify for a new homestead exemption and port the SOH benefit to your new Florida homestead property.
If this all sounds complicated, that’s because it is, and there are a lot more details and fine print to be aware of. It is best to confirm everything with a licensed CPA rather than your Realtor, but we are here to help clarify as much as we can.
Bottom line: do not cancel your homestead. Instead, enjoy the homestead already on the home you purchased and ALWAYS homestead your new Florida home on or before March 1. Once you have homesteaded, you do not need to apply again. Just apply with each new homestead. Also PORT your SOH! Save your money for more investments in other properties, cryptocurrency and stocks!