How to homestead and save on property taxes
August 5, 2019
For some, the word homestead conjures up images of quaint country prairie homes, pioneers in covered wagons, and the olden days when our country was still young and full of adventure. For others, homesteading means one thing – savings!
Florida, along with many other states, provides what is known as a homestead exemption. When a property owner declares a property as their primary residence, or homestead, they may receive a tax exemption on the assessed value of the home, up to $50,000. This $50,000 exemption is broken into two parts. The first $25,000 exemption applies to all property taxes on the home, including taxes that go towards the local school district. The second part, up to $25,000, applies to non-school district taxes on an assessed property value between $50,000 and $75,000. (see Florida Statute Title XIV, Chapter 196, section 196.031 if you are a legal nerd).
Numbers are scary but OfferDesk is here to help. Before we give you an example of what the homestead exemption could mean for your wallet, we have to define a few terms.
Assessed Value – The assessed value of a home, also known as it’s Just Value, is the fair market price of the home. The assessed value of a home will be determined by a property appraiser each year on January 1st. If you buy your home for $250,000, your home’s assessed value will generally be $250,000 the next time it is reassessed. Both the fair market price of a home and it’s assessed value may increase over time, but the Assessed Value will never exceed the fair market price.
assessed value = fair market price
Taxable Value – The taxable value of a home is the home’s assessed value minus any tax exemptions that are applied towards the home. The homestead exemption, along with other possible tax exemptions, reduces the value of the property for tax purposes.
taxable value = assessed value – exemptions
Tax Liability – The tax liability is the amount of money that is owed to local and state government, commonly known as property tax. Your tax liability will depend on The assessed value of your home minus any
tax liability = taxable value * tax rate
Let's talk numbers
Assume a home’s assessed value is $250,000. By declaring the property a homestead, the first $25,000 in appraised value qualifies for a total tax exemption. The next $25,000 are taxed at the normal rate based on the city and county that the home resides in. The value between $50,000 and $75,000 are exempt from all taxes, except school district taxes which are still assessed. The remainder of the property value above $75,000 is taxable at the normal rate.
By declaring a homestead exemption, the home owner will pay a property tax on a taxable value of $200,000 and a school district tax based on a taxable value of $225,000. Let’s assume a school tax rate of 0.6% and a property tax rate of 1.1% to see the difference between taxes with and without a homestead exemption.
Without Homestead Exemption
- Property tax = $250,000 * 0.011 = $2,750
- School tax = $250,000 * 0.006 = $1,500
- Tax Liability = $2,750 + $1,500 = $4250
With Homestead Exemption
- Property tax = ($250,000 – $50,000) * 0.011 = $2,200
- School tax = ($250,000 – $25,000) * 0.006 = $1,350
- Tax Liability = $2,200 + $1,350 = $3,550
As you can see, declaring a homestead exemption on a $250,000 home could save you $700 on taxes!
Applying for Homestead
In most counties, home owners will receive a homeowner exemption packet a few weeks after their deed is recorded by the county. This packet will have important information about where to apply for the exemption. Most counties offer a variety of ways to apply including online, by mail, or in person.
Need more information? Find your local official’s website.
After taxes have been appraised, home owners have until March 31st to apply for homestead on their property.