Updated: Mar 17
In addition to the incredible weather and favorable tax environment we enjoy here in Florida, buyers of a Florida residence should be aware of the unique transfer restrictions, creditor protections, and tax benefits resulting from Florida's homestead laws. The application of Florida's homestead laws in a given situation relies upon whether a particular residence is deemed to be a homestead residence by meeting the standards for being a primary, permanent, or principal residence within the meaning of Florida's homestead laws. For the purposes of the information provided below, the status of the residence as a homestead residence has been assumed, but this should be confirmed by a Florida real estate attorney before relying upon such information. The restrictions, protections and benefits of Florida's homestead laws applicable to a homestead residence, derived from both constitutional and statutory bases, are as follows:
(I) Restrictions on Transfers;
(II) Protections from Creditors; and
(III) Property Tax Benefits.
I. RESTRICTIONS ON TRANSFERS
Florida law provides that any sale, conveyance, or mortgage of a homestead residence requires the joint signature of a spouse in order to be effective (see Article X, Section 4(c), Florida Constitution). Additionally, if the owner of a homestead residence is survived by a spouse or minor child(ren) at the time of the owner's death, the homestead residence must transfer to the spouse or minor child(ren) in accordance with Florida law (see Sections 732.401 and 732.4015, Florida Statutes). Failure to comply with Florida law with respect to the transfer of a homestead residence upon the death of the owner will require the homestead residence to transfer in the same manner as other intestate property (i.e. as though the owner died without a Will). Transfers of a homestead property pursuant to a deed held jointly by spouses, as tenants by the entireties, is a permitted transfer under Florida law upon the death of an owner. Florida law permits spouses to waive the homestead residence transfer restrictions, but the waiver must be done with a properly executed marital agreement. The consequences for a failed transfer of a homestead residence under Florida law are significant and problematic, which makes estate planning for these transfer restrictions critical.
II. PROTECTIONS FROM CREDITORS
Florida's Constitution provides that a homestead residence, up to one-half acre of land in a municipality and 160 acres of land outside of a municipality (or the proceeds from its sale) is protected from forced sale, judgments, or imposition of a lien by third-party creditors, except for the following: (i) liens on the homestead residence voluntarily given to secure a loan such as the mortgage to purchase the residence or a home equity loan or lines of credit; (ii) mechanics liens for goods and services provided to build, repair, or improve the homestead residence; (iii) certain liens recorded prior to the acquisition of the homestead residence; and (iv) property taxes, state tax, and IRS tax liens (see Article X, Sections 4(a) and (b), Florida Constitution ). These protections from creditors occur as a matter of right under Florida law and are immediate upon acquisition of the homestead residence. Florida courts have liberally construed the definition of homestead residences to include single-family residences, condominiums, and contiguous lands having separate legal descriptions and separate tax parcel numbers. However, second residences and investment properties will not be considered a homestead residence and homestead residences may lose protections when fraud is involved. Further, the ownership structure of a residence may also disqualify it as a homestead residence, as corporations, limited liability companies, partnerships, and certain trusts cannot have a homestead residence under Florida law. These homestead residence protections may also carry over to certain heirs who would inherit the homestead residence or its proceeds upon the death of the owner, including spouses, children, siblings, nieces, and nephews of the owner. Proper acquisition planning and ownership structuring is imperative to ensure that the homestead residence protections are not impaired.
III. PROPERTY TAX BENEFITS
Florida law allows for an exemption of up to $50,000 from the taxable assessed value of a homestead residence (only $25,000 applies to the taxable assessed value for school tax purposes), which tax exemption has the benefit of reducing county level real estate taxes. Effectively, the tax exemption applies to the first $25,000 and the third $25,000 (portion of the value between $50,000 and $75,000) of a homestead residence's taxable assessed value. In addition to the foregoing tax benefit, under the "Save Our Homes Amendment" to Florida's Constitution, annual taxable assessed value increases on a homestead residence are capped to the lesser of 3% or the increase in the CPI (consumer price index). Unlike the homestead laws for protections against creditors that occur as a matter of right, in order to receive the homestead tax benefits under Florida law, an owner of a homestead residence must affirmatively apply for the homestead tax benefits within specific time frames (it should be noted that the limitation as to one-half acre of land within a municipality and 160 acres outside a municipality still apply). In order to enjoy the homestead tax benefits, an owner of a homestead residence must fulfill the following requirements: (a) the owner of a homestead residence must have legal or beneficial title to the residence, recorded in the appropriate public records, prior to January 1st of the year of homestead application; (b) a homestead application (Florida Department of Revenue Form DR-501) must be submitted to the appropriate property appraiser's office on or before March 1st of the year for which the tax benefit is sought (unless that date falls on a weekend or legal holiday, in which event the deadline is extended to the next business day); and (c) the owner of a homestead residence must establish the appropriate Florida county as his or her legal domicile, actually reside in the homestead residence, and be a U.S. citizen or permanent resident. (See Article VII, Florida Constitution and Chapter 196 and Section 193.155, Florida Statutes). For clarity, only individuals are entitled to the homestead tax benefits, as business entities do not qualify. Also, generally not more than one homestead tax benefit will be allowed per individual or family unit (i.e. a married couple), unless the family unit meets very strict separate and distinct living requirements. Once the homestead tax benefit is established, it is automatically renewed each year, unless and until there is a change of ownership, use of the residence (such as renting), or marital status that would affect the qualification of the homestead tax benefit. Changes in the status of a homestead residence may require a notice of change to the applicable property appraiser's office, and depending on the specific change, the taxable assessed value of the homestead residence could increase to a just market value in the following tax year. Florida law also allows the homestead related property tax benefits to be ported (transferred) to another homestead residence within the State of Florida, but the transfer of the tax benefits will be subject to stringent portability rules. Additional details on the homestead tax benefits and the forms necessary to file for the homestead tax benefits can be found at the applicable property appraiser's website, which locally are: (i) Sarasota County Property Appraiser (www.sc-pa.com) and (ii) Manatee County Property Appraiser (www.manateepao.com). It is important to comply with Florida law with respect to the timing and filing for the homestead tax benefits, otherwise, these important tax benefits could be lost.
SRQ Property Law, LLC © 2022