CHAPTER 18 SNAPSHOT REVIEW
Taxes Affecting Real Estate Snapshot Review
REAL PROPERTY TAXATION
Taxing entities ● no federal ad valorem taxes, only federal tax on income and gain; federal
government can impose a tax lien against real property
●FL passes property taxation to local governments and tax districts
● FL requires property to be assessed at just value for taxing purpose
● annual tax schedule from January 1 to December 31 with taxes due before March 1 of following year
● counties, cities, municipalities, townships and special tax districts levy taxes on real property
● tax districts are established to collect funds for providing specific services, e.g., schools, fire protection, parks, community colleges, libraries, road maintenance
Ad valorem taxation ● property tax levied annually on the taxable value of a property in order to help fund government and public services
● tax base equals the total of assessed values of all real property within the area, excluding exemptions
●each FL county has its own elected property appraiser to assess property
● FL requires properties to be assessed at just value (market value)
●Amendment I provides homestead exemptions, portability of SOH limits, assessment cap for non-homestead properties
● protest procedure: contact property appraiser for adjustment; file appeal with Value Adjustment Board; initiate litigation against appraiser and tax collector with writ of certiorari
● property’s assessed value – exemptions and SOH = taxable value
●taxable value: assessed value minus exemptions and adjustments; if no exemptions, assessed value and taxable value are the same
● taxing entity determines what budget requirements must be met by ad valorem tax; tax rate = tax requirement divided by the tax base
●tax rate stated as mills ($.001), or dollars per $100 of assessed value, or dollars per $1,000 of assessed value, or as a percentage of assessed value
●taxable value X tax rate = property tax; tax rate may change every year; FL millage rates limited to 10 mills
Exemptions from property taxes ● Immune property: government owned and used properties are 100% immune from property taxation
● nonprofit properties are 100% exempt; homestead properties are partially exempt if qualified
Homestead exemption ● qualified for exemption if title holder, property resident for 1 year, permanent address, apply for exemption by March 1 for same year
● exemption automatically applied each year
● Save Our Homes amendment limits assessed value increases to 3% annually or percentage of consumer price index; assessed value not to exceed just value
● exemptions for surviving spouses, disabled, blind, military disabled; cumulative exemptions
Florida Greenbelt Law ● assessed based on actual use of property and not highest and best use; created to protect farmers from high taxes; farmer must apply by March 1 and use land for commercial agriculture; owner may lease property to tenant who will maintain agriculture operation
SPECIAL ASSESSMENTS ● tax levied against specific properties that will benefit from a public improvement;
amount is based on a pro rata share of the cost of the improvement and the value each parcel will receive from the improvement
TAX LIEN ENFORCEMENT ● unpaid property tax lien is superior to all other liens
Sale of tax certificates ● the buyer of a tax certificate agrees to pay the taxes due and after a period of time may apply for a tax deed on the property
●claim against property for unpaid property tax; FL requires sale of certificates annually for delinquent taxes; buyers bid on interest rate, not property; lowest bidder wins; certificate valid for 7 years with interest earned each month; property owner has 2 years to pay taxes and interest to redeem property
Tax deed ● conveys title in the tax sale
● certificate holder may apply for tax deed if owner does not redeem property; initiates tax sale
Tax sale ● the buyer must pay the taxes due, if still unpaid; the defaulted taxpayer may be able to redeem the property and reclaim title; if not redeemed, the state issues the tax deed to convey title to the buyer
● for properties unredeemed within 2 years; property goes to highest bidder who pays certificate holder certificate face value plus accrued interest
FEDERAL INCOME TAXES
Sale of real property ● gain on sale may be taxable; in residential sales, a portion of gain is excluded from taxable gain
● foreign sellers subject to withholding of tax on gain by buyers
Principal residence ● tax advantages may include: deductions and exclusions for mortgage interest, property tax, home equity loan interest, points and fees, gain on sale , IRA withdrawals
Investment real estate ● investment income is taxable; tax rate is applied to taxable income derived from net operating income; depreciation or cost recovery expense is not included in taxable income
● installment sales: purchase price is paid over time in installments; seller retains title; buyer takes possession; at end of period, buyer pays balance of price, gets legal title; gain not taxed until full purchase price received
●like-kind Section 1031 exchanges: tax on gain deferrable until property finally sold and not exchanged
