Property tax relief approved as Florida Legislature adjourns
TALLAHASSEE, Fla. – June 15, 2007 – The end came quickly for the 2007 Florida Legislature’s special session on property taxes with an agreement that would give current homesteaders a choice between their Save Our Homes benefits or a new super-homestead exemption. The Legislature adjourned at 6:28 p.m. yesterday, with the House and Senate passing three bills – an immediate statutory rollback and cap of property tax rates, a proposed constitutional amendment creating a super-homestead exemption that, under the third bill, will be considered by voters on Jan. 29, 2008, in conjunction with the state’s presidential preference primary.
Under this two-step approach, the average homesteaded property should save 44 percent; the average non-homesteaded residential property and commercial/industrial properties should save 8 percent; the average tangible personal property tax savings should be 17 percent; however, with a new $25,000 exemption on tangible personal property taxes, FAR estimates that most Realtors will not have to file or pay any of this tax. The combined elements of the plan offer $31.6 billion in tax relief over the next five years, which is being touted by House and Senate leaders as the largest tax cut in Florida history.
“While the tax reform package passed yesterday is not perfect, it does begin to address some of the inequities in the system,” says John Sebree, Florida Association of Realtors®’ (FAR) vice president of public policy.
“Realtors support rolling back property tax rates and capping millage rates in order to provide homeowners and businesses with some much needed property tax relief. We were disappointed that legislators were not able to come to an agreement on the issue of “highest and best use” and how property is appraised. The legislature has pledged to work on this issue with us to secure additional relief.”FAR issued two Calls-to-Action – one targeted call during the special session and one at the conclusion of the regular session in May – to pressure lawmakers into significantly reducing Floridians’ property tax burden. In all, about 30,000 Realtors actively lobbied their representatives.
Overview of property tax reformStep 1: The two steps operate independently and cut taxes in different ways. Under step one, all cities and counties are required to cut taxes in the upcoming 2007-2008 fiscal year to 2006-2007 revenue levels. After determining that level, each county government must then cut an additional 3 percent, 5 percent, 7 percent or 9 percent. Cities’ property tax cuts are similar.
The specific amount each local government must cut depends on a formula. Residents of counties in which property taxes have risen the most will see the greatest savings. The bill also mandates yearly limits on tax increases. Local governments may increase tax revenues over time only by an amount based on local increases in personal income and new construction.
However, local governments are still allowed to override the proposed cut and caps, with the method – supermajority vote, referendum, etc. – for override approval depending on the magnitude of the change.
Step 2: To amend the Constitution, voters will be asked to replace “Save Our Homes” and the $25,000 homestead exemption with a new super-homestead exemption in January’s election. However, a last-minute agreement on the amendment allows homeowners to choose their tax, and those who save the most under the Save Our Homes amendment – generally long-time owners – may stay with that program as long as they remain in the same house. Amendment passage requires approval from 60 percent of voters.
The exemption has two tiers:Tier 1: Homestead property will receive an exemption of 75 percent of the first $200,000 in value of the home; or, put another way, a taxable value of $50,000. The minimum exemption is $50,000 per homestead.
Tier 2: In addition to Tier 1, homestead property will obtain another 15 percent exemption for the next $300,000 in value. A $350,000 property, for example, would have a taxable value of $177,500 – $50,000 on the first $200,000, and $127,000 on the additional $150,000.
After the Legislature disbanded, Gov. Charlie Crist, who made lower property taxes one of his campaign issues, offered praise for the series of bills. “We’ve got half of it,” he said, referring to the fact that voters must still approve the second step of the plan. “Now the people get to finish the job. It is power to the people to bring about this largest tax cut in the history of Florida.”
© 2007 FLORIDA ASSOCIATION OF REALTORS®
Why second home's a better investment than stocks
Published: 4/25/07, 8:00 AM EDT
By Tom Kelly
Inman News
Ted Jones never has tried to keep up with the Joneses. The senior vice president and chief economist for Stewart Title drags his own huge net to filter financial data and often offers opinions that are over the top compared to his housing brethren.
When it comes to second homes, he really heads back to basics and suggests potential buyers do the same.
"My definition of a second home is one that is purchased with no intention ever to sell it," Jones said. "If you sell it or even intend to sell it, it's an investment. Period. If you do, you've lost my definition of a second home.
"We plan to pass ours on to our daughters as a part of their inheritance. If fact, we don't want it to go up in value because then we would have to pay more property taxes."
Clearly, Jones' idea of value of a second home has little to do with wealth accumulation. His only value gauge comes from the ability to enjoy the property -- sunset over the lake, cocktails by the seventh fairway, a breathtaking mountain view just a short walk up the road, etc.
While it's easy to agree with Jones about the basic idea of a second-home investment, most potential shoppers can't afford to consider only the pleasure component; they are in need of a larger total package. So, let's consider investing in a second home versus common stocks to help explore the possibilities.
Conventional wisdom still holds that common stocks offer the best returns over time. If you measure cash-on-cash return, this may be true, but when you look at total return, the picture changes. The ownership of real estate offers four distinct advantages over stocks:
1. Real estate prices are less volatile in most areas. As we have seen in the opening years of this century, stocks can move a great deal in both directions. This makes ownership of stock a crapshoot, with profit solely dependent on timing. If you cashed out in December 1999, your returns were huge; if you waited a year, you probably lost a great deal. Since then, it's been up and down. House prices fluctuate, but within a lesser range. If real estate prices don't shoot up the way stock prices do in a bull market, real estate markets don't crash the way stocks do when the bull runs out of steam. In short, it's a less risky investment.
2. Real estate is a leveraged investment. You can own a second home with an equity investment (down payment) of no more than 20 percent. In fact, there are many programs that let you buy with a lot less. Most people can't do this with stock. You need to pay the entire price of the stock. So, when the price of a stock rises 5 percent, you make 5 percent on your money. If your real estate rises by 5 percent in value, your return is upwards of 25 percent.
3. Real estate is tax-advantaged. Any interest incurred for the financing of a second home is deductible from ordinary income for tax purposes. If your second home becomes an investment property, tax can be deferred and sometimes eliminated. You still pay capital gains tax on stock and you can't deduct the interest on any debt incurred for the purchase of financial assets.
4. And finally, here's the only return that drives the Jones camp: you can live in real estate. Stock certificates are pretty, with great colors, cool writing and embossed letters. Unfortunately, you can't go to sleep in them or stand on them to watch the sunset over the lake, or hold a party for your friends and family in them. They just (hopefully) make you money. Real estate provides many different kinds of satisfaction that money can't.
While I absolutely concur with Jones and about the pleasure power of a second home, I also believe deeply in its long-term wealth-building powers. In a nutshell, if you think a house is good enough to live in and enjoy, someone else will too, and they'll pay you for the privilege to rent it. The ownership of an investment, particularly that property you can personally enjoy, pays dividends on a variety of levels and can be a very profitable road.
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