Florida has everything you could ever want. There are beautiful beaches along the coasts, warm weather all the time, and excellent amusement parks. These are great selling points for a real estate investor. However, property taxes in Florida could be a confusing topic.
Though Florida doesn't have a state income tax, there are other ways that the local governments collect their fair share. One of them is property taxes on real estate you own.
Whether you own a condominium in Miami or a small home in Orlando, you'll likely have to think about property taxes. Likewise, it doesn't matter if it's your first investment property ever or if you've acquired multiple buildings throughout the years.
However, you likely have questions about property taxes the local governments impose on buyers, homeowners, and landlords. For example, how much will you pay? Who owes these taxes? How do property taxes in Florida work? Who calculates the cost and how? Can you legally lower these prices to maximize your investment revenue?
This comprehensive guide is here to shed more light on the property tax system in Florida. Whether you're an investor, property manager, or landlord, you'll get the answers you need.
In fact, we'll walk through the rates, essential dates, key propositions, exemptions, calculations, and more. Plus, you'll learn what might happen if you're late making payments. Overall, you will be well-prepared to deal with property ownership and taxation in Florida.
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Understanding Different Property Tax Bills in Florida
It's important to understand the various property tax bills you might encounter when buying Florida real estate.
Florida Property Tax
Every Florida property is given a taxable value. Owners will pay the property tax based on that value, except for government entities, schools, and churches. It's paid to your local municipality.
The property taxes go toward infrastructure (libraries, roads, and medical services) and public schools. Your local county property appraiser will set the assessed value, which is based on the market data from the prior year, on January 1 of every year.
There are often misunderstandings about property taxes in Florida. The local municipality determines the property tax rates, and they're the same for all properties, regardless of ownership.
Though it's possible to reduce the property value, you can't lower the tax rate itself. For instance, widowed or disabled veterans as property owners will receive credits against the taxes owed. To be eligible, it must be your primary residence and cannot be a rental property or a second home.
Florida statutes dictate how every county determines the property values. This is released and published in late summer each year. You'll visit the Florida Department of Revenue site to learn more. However, the tax collector will send the property tax bill to you if you don't pay it through your mortgage already. Likewise, tax collectors collect the payments and answer questions you may have.
Capital Gains Tax
The US government generates income by taxing the profits of real estate sales. This is called capital gains tax, and it applies to everyone who sells investment properties.
It's the tax you pay on the profit you make on the appreciation of the property since it was purchased. The profit is the revenue minus your expenses, and it's wise to work with an accountant to get it right.
Through the 1031 Exchange, you could defer or delay taxes on your real estate gains, though there are specific rules in place to do this.
Federal Rental Income Tax
As a landlord, you will be subjected to another tax category. If you receive a net profit from the rental income, you may pay federal tax on the profit. Likewise, there's a sales tax for short-term rentals, which is often submitted to the local government and charged to the renter.
Florida Property Taxes and the Homestead Exemption
Real estate property taxes become payable in Florida on November 1 each year. They can be paid through March 31 and become delinquent thereafter. You can pay a total of four months early, and if you do, you get a one percent discount (up to four percent).
For instance, if you paid your property taxes in Florida in November, you'd save 4%, or $160, of your $4,000 property tax bill.
Likewise, if the house is your primary residence, you can get a reduction of up to $50,000 for the assessed value of the property. Similarly, the assessed value can't increase by more than three percent in one year, which is called the Save Our Homes Act or the Homestead Exemption.
It's also possible to appeal the home's value. Though you cannot change the millage rate, it's possible to appeal the property value itself. You'll have to talk to the property value adjustment board in the property appraiser's office.
Every county has a value adjustment board with five members on it. They review and decide the classifications, assessments, and exemption challenges. It's not affiliated with tax collectors and property appraisers.
How Often Will You Pay Property Tax Each Year in Florida?
Now that you know how Florida property taxes work, it's time to determine when you'll pay them.
As mentioned, you can pay property taxes on November 1 and up through March 31 each year. However, if start paying them on November 1 of the prior year, you can save money.
Consequences of Late Payments
On April 1, you have late property taxes. The county assessors could charge you late fees and penalties and often do.
Typically, the overdue amount will become a lien on your property. In a sense, the lien makes the property collateral for your debt.
If you don't pay the penalties, late fees, and property taxes owed, the tax collector can sell the tax lien. You can pay that off, and if you don't, the collector will sell the property using the tax deed sale option.
This takes time, so you will have many chances to become current.
How to Pay a Property Tax Bill in Florida
If you make mortgage payments each month, you're probably already paying property taxes. Most mortgage companies include payments for the Florida property taxes, which go to an escrow account every month. When the property tax is due, the mortgage company will pay it from that account.
Make sure you check your monthly mortgage statements to make sure this is covered.
However, if you don't have a mortgage or the company doesn't pay taxes for you, you'll have to go to the county's tax collector. There are various payment options available from the Florida Department of Revenue.
How Much Is Property Tax in Florida?
The average effective property tax rate in Florida is 0.91%. However, everyone doesn't have the same property tax rates.
For example, if your property is in the Florida Panhandle, you will often see a lower tax bill than if you owned a high-rise condominium in Miami.
Average Effective Property Tax Rate
The government likes to make things complicated. You have the regular property tax rate, which is set by the local government and uses millage rates. Calculating what you owe using the millage rate system is confusing.
Then, you have the effective property tax rate, which is a percentage of the actual value of the home you pay in property taxes every year. You simply determine what your home is worth and multiply that by the effective property tax rate. This is roughly the amount you'll pay.
Here's an example:
Your county has an effective property tax rate of 1%, and your real estate investment is worth $300,000. Therefore, you'll owe roughly $3,000 in property taxes.
The rates for Florida property taxes differ based on the county, and here are a few of them:
- Alachua County - 0.78%
- Bay County - 0.44%
- Baker County - 0.55%
- Brevard County - 0.53%
- Charlotte County - 0.59%
How Is Property Tax Calculated in Florida?
Your property taxes are calculated based on various factors, including the home's value, the exemptions you might qualify for, and the county where the house is. The basic equation is this:
The taxable value of the property is divided by 1,000. That number is multiplied by the millage rate, which equals the property tax owed.
Here's an example to help you: You own an Orlando home in Orange County. The property appraiser determines that it is worth $350,000.
You may not owe taxes on the full value of the property if you'll qualify for exemptions. As a landlord, you won't be eligible for the homestead exemption, but let's say you live in the home and do. You'll drop your home's worth by $50,000, so you're only taxed on $300,000.
However, the millage rate in Orange County equals five mills. One mill is $1 of property tax for each $1,000 of the home's value. Therefore, you'd be paying $5 in property tax for each $1,000 of the assessed value.
Using the property tax equation above would look like this: $300,000 divided by 1,000 and then multiplied by five mills to be $1,500.
How Can I Lower My Florida Property Taxes?
Do you wish to lower the amount you pay in property taxes? Most people do. Florida offers many property tax exemptions that might reduce the tax bill when you qualify.
The homestead exemption is the most common, and it helps homeowners save money every year. However, to qualify, you must own the property and make it your permanent residence, which won't work if you're a landlord or property manager.
Still, there are other exemptions you might qualify for:
- Being a senior citizen
- Being a widower or widow
- Being a property owner with a disability
- Having properties with specialized uses
- Being a spouse of a first responder who died while in the line of duty
- Being an active-duty military service member or veteran
Important Propositions for Florida Real Estate Investors
Florida's Amendment 2 gave Floridians an opportunity to keep the 10% cap for annual property tax increases for non-homestead properties held in perpetuity. This includes rental properties, vacation rentals, businesses, second homes, and other types of real estate.
Amendment 2 primarily focused on protecting renters. Landlords couldn't boost rent prices too high if they were hit with any uncapped property tax assessments. However, it also benefits landlords and property managers in that their property tax increases are limited.
While homestead properties (primary residences) have a 3% cap each year, other properties were subjected to increasingly high prices.
There is also the Florida Amendment 1 to consider. This amendment was passed, and it created laws that prohibited flood resistance improvements from being used to determine the assessed value of a property for tax purposes.
Owning property in Florida is an attractive investment opportunity. However, it comes with its own risks, so you have to be fully aware of taxation.
It's crucial to navigate the maze of property tax in Florida, and it's often difficult and confusing. However, you'll be safeguarding your investments and ensuring that you're protecting your assets.
Being well-informed is essential because you don't want unwelcome surprises. Therefore, you learned how to calculate your tax bills and when they're due. Likewise, you focused on ways to lower your prices by appealing the property's assessed value and more.
Make sure you stay updated with legislation changes and consult with a tax professional as needed. These things will help you manage your investment strategy much more thoroughly and safely.
If you're looking for more tips on property management accounting, check out our whitepaper on the best tips for simplifying this complex process.