Flashcards in Chapter 18: Taxes Affecting Real Estate Deck (59)
The Purpose and Use of Real Estate Taxes
The U.S. Constitution prohibits the federal government from levying property taxes. The Florida State Constitution limits the tax burden that can be placed on individual properties. The U.S. government relied mainly on income taxes as a source of revenue, while the state relied on state sales and use taxes to fund the cost of state government services.
Property tax revenue is collected and used by local government to provide public services such as law enforcement, fire protection, roads, schools, and so on. There are three primary taxing districts in Florida: city, county, and school board. In addition, there are numerous smaller special taxing districts that provide neighborhoods with certain types of services that are not provided to the entire area. These may include fire control districts, flood control districts, mosquito control districts, and others. A resident who lives outside of a taxing authority (i.e. outside of the city limits) would not have taxes levied for that taxing district.
Tax Rates Expressed as Mills
A tax rate is the percentage at which an item is taxed. Property and school tax rates in Florida are expressed in the form of mills, or millage rates. The millage rate is the amount per $1,000 that is used to calculate the tax.
One mill is expressed as the decimal number .001m the equivalent of 1/1,000 of a dollar. There are ten mills in a penny, 100 mills in a dime, and one thousand mills in a dollar.
Mills are written as decimals rather than whole numbers, so it is necessary to convert the number of mills into decimal before calculating the real estate tax levy. Since mills are expressed in thousandths of a dollar, the decimal form of a mill uses three places to the right of the decimal point.
Examples of mills
1 mill= .001
2 mills= .002
8 mills= .008
10 mills= .010 (or .01)
13 mills= .013
20 mills= .020 (or .02)
When adding the decimal forms of mills, you must line up the decimal places.
6 mills + 12 mills = 18 mills
.006 + .012 = .018
The 10 Mill Cap
The Florida Constitution limits local government tax rates to 10 mills for each taxing authority. This is referred to as the 10 mill cap.
The taxing body may select any rate necessary as long as it does not exceed the statutory limit. The state legislature has, from time-to-time, established rates that are lower than 10 mills, but they cannot be higher.
Ad Valorem Tax
Real estate property taxes are ad valorem taxes, which means “according to value” and, therefore, are based on the value of the property. The term “property tax” is used interchangeable with the term “ad valorem tax.”
The county property appraiser in each county assesses all property for real estate tax purposes each year. The estimate of value that is determined by the county property appraiser is called the assessed value, which by law must be based on the concept of just value. Just value means “fair value” and has been interpreted by the courts in Florida to represent the market value of the property. To avoid duplication of effort, all taxing districts in the county must base their taxes on the assessed value that is determined by the county property appraiser.
An exemption is an amount allowed by law based on certain circumstances or status that reduces the amount that would otherwise be taxed. Taxable value is the assessed value of property minus the amount of any applicable exemptions.
Taxable Value Determines Tax Liability
A property’s taxable value is the value used for determining the property owner’s tax liability.
The tax levy is the actual amount of tax payable by each property owner. The tax levy is not determined by the property appraiser’s office. The tax levy is determined by multiplying the taxable value by the applicable millage rates.
After the county property appraiser determines the assessed value of the land and any improvements, the property owner is notified by mail of the assessment through a True Rate in Millage (TRIM) notice. The TRIM shows the assessed value, how much tax was paid last year, how much the taxes will be if no change is made in the budget, and how much the taxes will be if proposed changes are made in the budget.
The assessment is as of January 1st; the TRIM notice is generally mailed in August, and the budgets are not adopted until September. Since the budget has not been finalized as of the time in which the TRIM notice is mailed, the county property appraiser cannot provide the actual amount of the taxes that are due.
Protesting the Tax Assessment
Not all property owners are willing to accept the assessed value that is determined by the county property appraiser. A protest procedure allows an owner, who disagrees with their assessment, to challenge the value, and hopefully, receive a lower assessment, thereby resulting in a lower tax bill.
Protesting a tax assessment is a three-step process.
Protesting a tax assessment is a three-step process
1. Protest the assessment by requesting an informal conference with the county property appraiser. This conference can be conducted at any time throughout the year, but is usually not very effective until the assessment for the current tax period is known.
2. Within 25 days of the TRIM notice mailing date, file a request for a hearing before the Value Adjustment Board, which is composed of two county commissioners, one school board member, and two private citizens. One is a local homestead homeowner appointed by the county. The other citizen is appointed by the school board, and must be a business owner who occupies commercial space in the school district.
3. File an appeal with the District Court of Appeals (certiorari proceeding) within 60 days from the date of the hearing before the Value Adjustment Board.
Real Estate Tax Exemptions and Limitations
Tax revenues pay the bulk of the cost of local government. The total revenue required is determined by the amount of the budget.
Any property owner who pays a reduced tax bill or none at all means that other properties will have to pay more in order for the budgeted amount to be realized. That does not say that all exemptions should be eliminated, but the effect of exemptions should be fully realized by licensees. An exemption is not truly an exemption; it is a shift of the responsibility for payment of the amount required to maintain government services from one party to another.
For tax purposes, properties can be classified as follows:
- Full Payment: Those who pay a full tax levy
- Partially Exempt: those who pay a reduced levy because they qualify for an exemption that is less than 100%
- Fully Exempt: those who pay no real estate taxes because they qualify for a full exemption (100%)
- Immune: those who are not included in the taxable value because they are immune from paying taxes
Property owned by churches and nonprofit organizations that are engaged in charitable activities are assessed for tax purposes by receive a 100% exemption from payment of property taxes.
Property owned by local, state, and federal governments are immune and, therefore, are not assessed, or subject to, taxation when used to provide government services. However, government-owned properties that are leased to private businesses, such as office buildings and warehouses, are subject to property taxes.
Greenbelt laws provide farmers with favorable tax treatment if their property is used for agricultural purposes. Greenbelt laws assure that the property will continue to be assessed the same as other agricultural properties, thereby protecting against increased taxes caused by encroaching uses that would tend to raise property values.
Greenbelt laws limit the property assessment; they are not an exemption.
Homestead Tax Exemption
Every person who owns and resides on real property in Florida on or before January 1st and makes the property his or her permanent residence may be eligible to receive a homestead exemption of up to a maximum of $50,000 of assessed value. The amount of the exemption is determined by the assessed value of the property.
Basic (1st) Exemption
the first $25,000 applies to all property taxes, including school district taxes. All qualifying owners can deduct up to $25,000 from the assessed value of the property. For properties with an assessed value under $25,000, there are no ad valorem taxes.
Additional (2nd) Exemption
an additional 2nd exemption, up to $25,000, applies to the assessed values greater than $50,000 for city and county taxes only (not school taxes). For assessed values over $50,000 but less than or equal to $75,000, the 2nd exemption is the amount over $50,000. For assessed values over $75,000, the 2nd exemption amount is capped at $25,000. Therefore, the property must have a minimum assessed value of $75,000 for the homeowner to receive the full $50,000 exemption.
2nd Exemption qualify
To qualify for the homestead tax exemption, the property owner must file for the exemption with the county property appraiser between January 1st and March 1st each year. The property must be the owner’s primary residence. Filings that are made after March 1st apply to the following calendar year.
Many counties automatically renew
previously filed homestead exemptions and mail postcards to homeowners to notify them of the renewal. If the use of the property or condition of the owner changes the exempt status of the property, Florida law required the owner to notify the county property appraiser. By not returning the car, the owner is stating that they claim entitlement to the exemption for another year; this constitutes a new filing.
When is the card returned
Typically, returning the card to the appraiser’s office is done when the property owner no longer qualifies for the exemption. Penalties for failure to notify include being subject to the taxes exempted plus 15% interest, and a penalty of 50% of the taxes exempted. Any person who falsely claims homestead exemption may also be guilty of a first-degree misdemeanor.
Individuals Eligible for Additional Exemptions
-Widows and widowers who have not remarried
-Veterans of military service with at least a 10% military service-related disability
widows and widowers who have not remarried
Veterans of military service with an at least a 10% military service-related disability
may claim only the first two of these additional exemptions. Therefore, the maximum homestead tax exemption for nonveterans is $51,000.
Any individual, veteran or not, who is totally and permanently disabled is entitled to 100% exemption from payment of property taxes. The person must be certified as totally and permanently disabled by two Florida licensed physicians, by the U.S. Department of Veterans Affairs, or by the Social Security Administration.