Homestead exemption in Florida
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Florida's homestead exemption provisions are among the most protective in the United States, and refer to two similar, but unrelated provisions of the Florida Constitution. The creditor protection clause of Article X gives no limit to the value of property that can be protected from creditors. The tax exemption clause of Article VI renders property tax-free certain dollar amounts of the value of the homestead, as well as up to $1,000 of personal property. Both provisions apply automatically upon the establishment of a primary residence in Florida, but to reap the tax assessment benefits it must be claimed by a filing with the state. It can be lost if the homeowner abandons use of the homestead as a primary residence.
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[edit] Scope of the protection
Florida's creditor protection homestead provision is one of the broadest in the United States. The value of the property that can be protected is unlimited, so long as the property occupies no more than ½ acre (2,000 m²) within a municipality, or 160 acres (650,000 m²) outside of a municipality. The provision is written into the Florida Constitution, Article X, section 4, so it can not be removed without a constitutional amendment.
Because of the scope of the protection afforded, persons from other states with heavy debts or large court judgments against them have been known to purchase expensive estates in Florida, a famous example being O.J. Simpson.
One event that can drastically affect the value of a homestead is municipal incorporation. If a 160 acre (650,000 m²) non-municipal homestead is on land that is later incorporated into a municipality, the homestead will be grandfathered in and remain protected for the owner and his heirs. However, for any future purchasers of all or part of the property, the protected land will drop to the ½ acre (2,000 m²) allowed within a municipality.
[edit] Protection from creditors
The homestead exemption offers virtually absolute protection from forced sale to meet the demands of creditors, except under three special circumstances listed below.
One unique feature of Florida's homestead exemption is that it attaches to proceeds from the sale of a home, if the homeowner intends to use those proceeds to establish a new Florida homestead within a reasonable time. Therefore, if the owner of a $1,000,000 home sells that home and puts the money in a bank account, that money is still protected by the homestead exemption, so long as the homeowner has a bona fide intent to use it to purchase another home in Florida entitled to the exemption. This protection is lost if the funds are commingled with other funds not designated for such a purchase. Also, the protection only extends to the amount the owner intends to invest in a new homestead - if the owner of a $1,000,000 home sells that home, and makes clear his intent to purchase a $750,000 home, the remaining $250,000 will lose its protection.
[edit] Exceptions for certain creditors
Three types of creditors can still force the sale of a homestead to collect debts owed to them. These are:
- The State of Florida and its counties or municipalities, to collect past due property taxes;
- Parties to whom the property was specifically pledged as credit for a mortgage;
- Mechanics who are owed money for work performed in repairing or improving the property.
Because the homestead exemption is state law, it can also be over-ridden by the United States federal government, to satisfy federal income tax debts for example, although this has rarely occurred.
[edit] Reduction of property tax
Florida property tax homestead exemption reduces the value of a home for assessment of property taxes by $25,000, so a home that was actually worth $100,000 would be taxed as though it was worth only $75,000. Florida counties are permitted to tax property for up to 3% of its total value, so a $100,000 home could be taxed $3,000/yr, but the homestead exemption would reduce that burden to $2,250/yr.
Additionally, and more importantly, the Florida homestead exemption caps the rate at which property taxes may be increased. Though millage rates may be changed, the assessed value a house with a homestead exemption can be increased by is fixed. This is the result of the “Save Our Homes” Amendment to the Florida Constitution which was passed by voters in 1992, and went into effect in 1995. The amendment caps the increase of the assessed value of a home with a homestead exemption to the lesser of 3% or the rate of inflation. This means that if an owner had a homestead exemption on a home valued at $100,000 in 1995, and the exemption was still valid in 2005, the most the home could be assessed at is $126,000. For comparison, records of the Florida Association of Realtors show the median price of a single family home during the same time increasing 175% from $89,900 in 1995, to $247,000 in 2005.
Homestead exemptions are only available on an individual’s primary home. Therefore, this exemption does not apply to businesses, rental property, second homes, or homes with owners that do not claim Florida as their primary residence. Further, the benefits from the “Save Our Homes” amendment do not run with the homesteader or the house. A homesteader that moves will pay taxes on the full market value of the new house for their first year. Acquiring a house that had a homestead exemption does not entitle the buyer to retain its low tax rate.
Supporters of the “Save Our Homes” Amendment contend that it allows long term residents with a fixed income to be able to afford to stay in their homes without being driven out by tax increases as their property value increases. Detractors argue that it creates an unfair system of taxation in which first time home buyers, new residents, seasonal residents, and businesses are burdened with more than their share of taxes while homesteaders are trapped in their own homes, often unable to move without doubling their tax rate.
[edit] Protection to surviving spouse or minor child
The provision also protects a spouse in several ways. First, it restrains the homeowner from conveying the property without the approval of their spouse, even if the property is entirely in the name of one spouse, or was purchased entirely from funds of one spouse. The provision also prohibits a spouse from devising the property by will, if the homeowner is survived by a spouse or a minor child. A spouse may waive these rights with respect to the will, but a minor child is not competent to do so. Finally, the homestead exemption automatically attaches to the surviving spouse, so the property will never be exposed to the creditors of either spouse because of the death of the other.
