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Property tax relief: What is portability?

Author johnbsims3
Admin Male

#1 | Posted: 22 Apr 2007 19:04 
Property tax relief: What is portability?

It's one of the more controversial -- and confusing -- ideas in the current legislative debate over lowering property taxes: Portability.
Some Floridians see in the word a promise: A way to be able to afford the property taxes on another home when they move. Others see in the same word an injustice: A way to give some people a break that others won't get.

At heart, the issue is rooted in a provision in Florida's Constitution, known as the Save Our Homes cap, that protects homeowners from skyrocketing real estate taxes.

The cap limits the yearly increase in the value a home for tax purposes. In practice, that means someone who bought a home before the boom in the real estate market pays less property tax than if the home were assessed at full value.

That has raised a question: Should those homeowners be able to benefit by somehow transferring some or all of those savings when they buy a new home?

Both chambers of the state Legislature say yes. They say portability would help people who feel ''trapped'' in their homes because they can't afford the taxes on a new home. And they believe portability would help reignite a stagnant real estate market.

Over the next few days, lawmakers from both chambers will attempt to reach a compromise on how best to trim property taxes in Florida -- and portability will be a big part of the discussion.

To help readers understand the issue, here is a Miami Herald primer on portability, with answers to some of the most commonly asked questions.

Question: What exactly is portability?

Answer: It's the concept that a homeowner who buys another house as a primary residence can transfer property-tax savings to a new home.

The savings come from the Save Our Homes cap, which limits the yearly increase in the assessed value of a home for tax purposes to a maximum of 3 percent, even if the real value of the home is higher.

For example, a homeowner who has lived in a house for many years may pay taxes on $200,000 of assessed value, even though the home's real value is $500,000. Portability would allow the homeowner to use that difference, $300,000, to lower the property tax on the new home. So if the new home is assessed for tax purposes at, say, $700,000, the new owner would pay taxes only on $400,000. And the $25,000 homestead exemption would lower that further, to $375,000.

Q: What's the argument in favor of portability?

A: That it would help revive Florida's real estate market, helping both state and local economies. Portability would encourage more people to buy new homes, because it would make the property taxes more affordable.

Some homeowners, among them empty-nesters who want to downsize, have complained that they are trapped in their old homes, unable to afford to move because of the large property-tax hit on the new house.

For those people, portability would make it easier to buy another house.

Q: What's the argument against portability?

A: That it aggravates the inequities created by the Save Our Homes cap. The cap applies only to primary residences with homestead exemption. Rentals, second homes and commercial property don't get the benefit.

If portability becomes a reality, counties and cities will continue to see their tax collections suppressed by the tax cap on homesteaded property. So the tax burden would shift to businesses, renters and owners of second homes.

Q: How would the House plan work?

The House proposal would allow a homeowner to transfer the Save Our Homes savings from the old home to the new one, with no limits.

Q: How is the Senate proposal different?

A: In two ways: First, the maximum tax savings that could be transferred to a new home would be $500,000.

Second, the yearly increase in taxable value for the new home would be a flat 10 percent, rather than the current 3 percent Save Our Homes maximum.

The higher cap on the new home would not last forever, though. It would fall back to 3 percent at some point in the future -- when the taxable value of the home reaches the level it would have had the owner not had portability.

Q: What happens to portability if I buy a home with a lower market value than the home I sold?

A: Under either version, you cannot use the Save Our Homes differential to get a lower assessed value on a new home than the assessed value on the old one.

Q: How likely is it that some of portability will be part of the Legislature's property-tax cut package?

A: Very likely. The leadership in both chambers backs some form of portability.

Q: Which version, the House's or the Senate's, is likely to pass?

A: Though anything can happen, the more likely scenario is some sort of compromise between the two versions.

Q: How soon after passing the Legislature would portability take effect?

A: Portability would have to be approved by voters statewide, because it modifies the Save Our Homes cap, which is written into the state Constitution. An amendment to the state Constitution has to be approved by 60 percent of voters.

Q: When would Floridians vote on it?

A: Depends. The House wants a vote this November. The Senate suggests a vote in November 2008.

A vote this November would need a special election, which would require approval by a three-fourths vote of each chamber. A November 2008 election would require approval by only a two-thirds vote of each chamber.

Q: Some legal scholars have said portability could be unconstitutional. Why?

A: Because portability doesn't treat all buyers equally. For example, a Florida resident who owns a home with portable tax savings would pay less tax when buying a new home than someone from out of state who doesn't have a principal home in the state and no savings to transfer.

That, some scholars say, violates the interstate commerce clause of the U.S. Constitution.

The Senate version attempts to get around that by imposing the higher 10 percent yearly assessment on those who benefit from portability.

But there's disagreement over whether either the House or Senate version would survive a constitutional challenge.

Real Property Ad Valorem Tax Exemption Florida Homestead Services - Florida Homestead Exemption Act Forum / Real Property Ad Valorem Tax Exemption /
Property tax relief: What is portability?
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