The Secrets to Real Estate Taxes

Sometimes listings of similar properties describe significant differences in real estate taxes. On the surface, buying the house with lower taxes seems better: ultimately there is only a short-term advantage to this decision and here is why. Taxes during the year of purchase will be based on the current owner’s taxable value. The year after the purchase, the taxable value resets to the “market value” as calculated by the property appraiser. So, houses with lower taxes do have a little financial benefit to the buyer, but just for the purchase year.

Here are some details on how taxes work, including the tax vocabulary. I will work backward from the total taxes (disregarding non-ad valorem taxes for CDD, services, assessments, etc. from the tax calculation). The math for calculating real estate taxes is taxable value x millage rate = tax: each taxing authority (think schools, city government, county, etc.) develops its millage rate for the formula. Taxable value for each taxing authority is established by using the assessed value less any homestead or other exemptions allowed for that taxing authority. The formula for this is Assessed value – exemption amount = taxable value. For many properties with the homestead exemption the value removed from the assessed value is $25,000-$50,000.

Assessed Value for homestead property is increased or decreased by the Market Value established by the property appraiser, with some constraints. For homestead property, assessed value cannot rise more than 3% in a year.  Assessed Value of most non-homestead property may not rise more than 10% (under current law).

As a recap to all that detail: in the year of purchase, you are enjoying the seller’s tax situation. The year following, your assessed value will rise to the market value. If you own and live in your house on January 1, you too can apply for your homestead exemption and lock your assessed value increases. For residents of FL who owned property with a homestead exemption cap difference in the past year or so, look into transferring that reduction to your new property. To gauge what your 2nd year taxes might look like, visit your local county property appraiser’s website: Hillsborough has an address specific calculator found at Hillsborough Property Appraiser tool.

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