It is not uncommon for a buyer of real estate to be caught off guard by property taxes in the year after the buyer buys their Florida home. The reason is because property taxes are paid at the end of the year in Florida making the property tax bill unknown for most of the year when the property is purchased. Because the property tax is unknown, the prior year’s tax bill is used to calculate the taxes at closing. If the property is the seller’s homestead, then the seller’s property tax bill is lower because homestead causes up to $50,000 worth of a property’s taxable value to be exempt from taxes and the annual increase of the assessment of the property for tax purposes is limited to 3% per year under the Save Our Homes Assessment Limitation. If the seller owned the property for many years and it is the seller’s homestead, the property taxes are likely significantly reduced. The seller’s reduced property tax bill would be used to calculate property taxes for closing. The property tax calculation at closing might give buyers a false impression of the actual property tax amount.
After you buy homesteaded property, on the following January 1, after ownership changes to you, the homestead exemption and Save Our Homes Assessment Limitation will have expired on the property since the prior owner no longer owns the property. If you are a first-time homebuyer in Florida or you never homesteaded a Florida property, then you will have no assessment limitation to transfer to the property from a prior homestead and the assessed value of the property will be used to calculate your property taxes in the first full year of your ownership of the property. This can cause your property taxes to increase significantly from the year you bought the property to the first year you own the property.
As an example, lets say you buy a property in 2023 in Hollywood, Florida, for $800,000, which is also the just value of the property. The property is the prior owner’s homestead in 2023 and has been the owner’s homestead for many years. The owner purchased the property in the 1980s for $130,000. Since the property was the prior owner’s homestead for many years, Save Our Homes limited the tax assessment significantly so the property is only being assessed at $200,000. The 2023 tax bill is only about $3,400. You bought the property at the end of 2023 and the taxes paid reflect the 2023 tax bill amount. On January 1, 2024, a new tax year starts and it will be used to calculate your property tax. The property taxes will be reassessed using the $800,000 just value amount. In November 2024, the 2024 tax bill will be released and you will find a much higher tax bill, over $16,000 in our example.
The equation to calculate property taxes is as follows:
Just/Market Value limited by the Save Our Homes Cap or 10% Cap = Assessed Value
Assessed Value – Exemptions = Taxable Value
Taxable Value x Millage Rate / 1,000 = Gross taxes
In our example, our taxable value is $800,000. We have no exemptions or Save Our Homes reductions. The millage rate in Hollywood Florida in 2022 is 20.7752.
800,000 (taxable value) x 20.7752 (Millage rate) / 1,000 = $16,620.16
As can be seen by the example, the property tax is expected to go up significantly. From a 2023 property tax year of about $3,400 to a 2024 property tax year of $16,620.16. Make sure to consider how homestead can affect property taxes when buying real estate.