Absence of a state income tax in Florida can increase profits for real estate investors, but that doesn’t mean Florida is a “tax free” place to invest. Cities, counties, and the state still need to pay for public services, which is accomplished in part through real estate taxes.
So, here are four factors to lower your real estate taxes on investment property.
#1 Location: County and City
In Florida, real estate taxes vary between counties, and cities within counties, which is an important factor when deciding to invest in a specific geographic area of the Sunshine State.
In general, the counties and cities with the highest growth rates have the highest real estate taxes, because they need to build infrastructure and provide services to a growing population.
For real estate investors, this fact leads to an interesting tradeoff. The municipalities that are growing fastest have the highest real estate taxes, which on the surface might turn away investors. But they also have the most vibrant housing markets, as more people move into the area and need housing. Therefore, you shouldn’t necessarily avoid higher taxed communities as a real estate investor, rather be aware of the higher cost of doing business and make sure real estate investments in these areas have the pricing power to produce a respectable profit.
#2 Home Appraisals and “Just Value”
When determining the value of a property for tax purposes, Florida municipalities use “Just Value”, which is legally synonymous with “Market Value”.
As explained by Broward County’s Property Appraiser:
Just value is the price at which a property, if offered for sale in the open market, with a reasonable time for the seller to find a purchaser, would transfer for cash or its equivalent, under prevailing market conditions between parties who have knowledge of the uses to which the property may be put, both seeking to maximize their gains and neither being in a position to take advantage of the exigencies of the other. (Florida Administrative Code 12D-1.002)
As a result of using the just value for property appraisals in Florida, the value of a property for tax purposes is around 85-95 percent of its total worth.
#3 Homestead Exemption
Florida’s homestead exemption isn’t available for investment properties, perhaps with exception under the “Entire Dwelling” provision.
Florida’s homestead exemption allows permanent residents to exempt up to $50,000 of their property’s value from the tax assessment. Part-time residents, such as snowbirds, may take advantage of the exemption in some circumstances, if they live in the residence on January 1st of the year.
Property owners who rent out their property can possible take advantage of the homestead exemption under the “Entire Dwelling” provision, if they leave substantial personal property locked in several rooms of the home. But consult your legal and accounting professionals before attempting to get the homestead exemption under these circumstances.
#4 Non-Homestead Assessment Cap
All “non-homestead” properties that don’t qualify for the homestead exemption have a 10% assessment cap, meaning that the assessed value cannot increase more than 10% per year. The cap applies to all taxing authority millage rates except the School Board millage.
Real estate investment property that does not qualify for the homestead exemption, automatically qualifies for the non-homestead assessment cap.
In locations where property values are quickly increasing, real estate investors may see their real estate taxes increase less, than homeowners with the homestead exemption, because of the non-homestead assessment cap.
Real estate investors who purchase a property receiving the non-homestead assessment cap must be cautious, because the property will be reassessed at full market price the year following the sale, which could result in a sharp tax increase compared to the previous owner’s real estate tax liability.
As an investor, always consult your legal and accounting team before making a decision in respect to taxes.
Graystone Investment Group
Graystone is an experienced Investment Group, wholesaling properties in the Greater Tampa Bay market.
Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.