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Taxes Affecting Real Estate

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assessed value
The value of a property established for property tax purposes.
Exempt property include property belonging to churches and nonprofit organizations.
just value
The fair and reasonable value based on objective valuation methods.
special assessments
Are one-time taxes levied on properties to help pay for some public improvement that
taxable value
(Nonexempt assessed value) is determined by beginning with the assessed value and subtractign
Ad velorem tax
(Means according to value) real estate taxes are based on the value of real property
Current addresses
Are needed to ensure that owners receive a notice of change in assent my before the time
Protest procedure
1. To seek an adjustment by contacting the county appraiser or a representative of that
Tax districts: Budgets and Tax Rate Levy
- Every fiscal year, each tax district prepared an operating budget
Exemptions from property taxes: immune
Properties are city, county, state, and federal government properties
Exemptions from property taxes: exempt
Properties include property belonging to churches and nonprofit
Homestead Tax Exemption
- applicants must reside in the home and have legal title to the property as of January 1st
$5000 exemptions
Disabled veteran exemption
Floridas Green Belt Law
Florida law authorizes county property appraisers to assess agricultural land by a more
Save Our Home
This amendment of the Florida Constitution caps how much the assessed value of the homesteader
Tax rates
To calculate the dollar amount of property taxes owed, the taxable value of the property is
18% and going down
At the auction, any qualified person is entitled to bid for the tax certificate in any
Sale of real property
The IRS allows homeowners to exclude up to $250,000 of gain ($500,000 for married couples
Age 65 and older exemption
Florida law authorizes counties and municipalities to grant, by ordinance, an
Florida's green belt law
Law designed to protect farmers from having taxes increased just because the land
Annual property taxes due formula
Taxable value times tax rate, equals property tax.
Nonpayment of real property taxes
Property taxes constitute a lien superior to all other liens on real
Property tax certificate
Certificate in amount of taxes owed is issued for each delinquent property.
Federal incomes taxes
Current federal tax laws greatly affect the benefits that may be obtained from the purchase,
Interest on a home equity loan
The interest paid is deductible if the loan does not exceed $100,000.
Mortgage origination fees
Points are deductible the year they are paid, unless they are paid when refinancing
Exclusion of gain from the sale of a principal residence
An exclusion of up to $250,000 of gain realized on
Amount realized formula
Sale price minus expenses of the sale, equal amount.
Adjusted basis formula
Original purchase price plus buying expenses and capital improvements, equals basis.
Disable veteran exemption
Military veterans who are at least 10%disabled by service connected misfortune are
Special exemption for quadriplegics
A homestead owned by a quadriplegic is exempt from taxation. Also, low
Order of cumulative homestead tax exemption
The taxable value of a homestead property is calculated by totaling
Tax rate formula
Approved budget minus non-property tax revenue divided by total assessed value minus
Principal residence
Home owners have certain tax advantages. If homeowners or taxpayers itemize deductions
Mortgage interest
Interest paid on a mortgage loan on a principal and second home is deductible.
Property taxes
The annual taxes paid on principal and second homes are deductible.
First time home buyers
Home buyers who may make penalty free withdraws up to $10,000 from their tax deferred
Capital gain from sale formula
Amount realized minus adjusted basis, equals capital gain
Purchase of real property from foreign sellers
To prevent foreign sellers from avoiding the payment of taxes due in
Income classification
Active income, portfolio income, passive income.
Active income
Wages, tips, and commission.
Portfolio income
Income from interest, stock dividends, capital gains, royalties, and annuity income.
Passive income
Includes income from activities in which the taxpayer does not participate. Most income from rental
Capital gain and capital losses
Real estate, stocks, bonds, and so forth that are owned for investment purposes are
Deductions from gross income
Operating expenses, financing expenses, and depreciation.
City and county property taxes
Property Taxes provide the bulk of local government revenues in Florida. They
The Real Property Taxation Process
Property taxes are levied on a calendar year basis. Taxes are paid are paid
Ad Valor-em tax
Tax that is according to value.
Property tax schedule
January 1st the tax year begins, property is assessed, liens are attached, and tax exemption
Three approaches property appraisers apply to value
Sales comparison, cost depreciation, income approaches.
Truth in millage notice
A notice of proposed property taxes is mailed to the property owner at the address of
Step 1 in the protest procedure
Seek an adjustment by contacting the county property appraiser or a representative
Step 2 in the protest procedure
If the property owner's request for an adjustment is rejected, the owner may file an
Step 3 in the protest procedure
The final step available to a property owner seeking a change in assessed value is
Budgets and tax rate levy
Every fiscal year, each tax district whether city, county, school board, or special
Exemptions from property taxes
The owner of certain properties are relieved of obligation to pay property taxes.
Homestead tax exemptions
Florida residents who hold title to a home in Florida and use the home as their
First $25,000 of assessed value
Base $25,000 exemption from city, county, and school board taxes.
Assessed Value of $25,001 up to $50,000
Base $25,000 exemption from city, county, and school board taxes on first
Assessed value between $50,001 up to $75,000
Base $25,000 exemption from city, county, and school board taxes on
Taxable value formula
Assessed value minus (-) homestead exemption equals (=).
Additional $500 exemptions
Additional exemption for widows and widowers, legally blind persons, non veterans
Financing expenses
The interest paid, as well as the cost of obtaining borrowed money. While mortgage interest
Depreciation components
The depreciable basis of the property is the amount that may be depreciated. For real
Straight line method
Deprecation is calculated using this method. An equal amount of depreciation is taken
Straight line method depreciation formula
Depreciable basis divided by 27.5 years, equals annual depreciation.
Tax on gain at time of sale
When income property is sold for cash, al gain or loss must be recognized
Installment sale method
The gain is received over a number of years and the seller recognizes the gain for tax
Like kind exchange
Real estate investors can defer paying taxes by exchanging real property. The income tax is
Just value is
the fair and reasonable value based on objective valuation methods
If a property has been sold in the previous year, the sale price is considered in
assessing the value of the
When a property is sold, representatives of the property appraiser's office go into the community to
When a property is sold, representatives of the property appraiser's also examine
properties that have
Assessed value is
the value that is used for tax purposes
Real estate taxes derived from assessed value are called
Ad Valorem taxes
The words, Ad Valorem, are Latin for
according to valuation
Real property tax is an ad valorem tax based on
the assessed valuation of the property
Real estate is accessed for
tax purposes by county appraisers
An assessment is
an official valuation of real property for tax purposes based on appraisals by the local
homeowner should seek an adjustment within _____ days from the county property appraiser, or his representative
appraiser is in the homeowner's favor, the appraiser has the right to
make a change and lower the assessed value
the homeowner may file an appeal with the
Value Adjustment Board , a local group made up of 3 county
The Value Adjustment Board is
a local group made up of 3 county commissioners and 2 local school board members,
of his property, the board can
change the assessed value, but if the board agrees with the county appraiser, the
the property taxes, the homeowner may
file a suit in the courts after he pays taxes under protest
Certiorari proceeding means
a court will review the matter
procedure attempts have failed, if the court finds for the homeowner, it will direct the county appraiser to
procedure attempts have failed, if the court finds for the county appraiser, the homeowner
loses his appeal
One type of real estate property exemption is called
Immune Property. This is property that the county will not
The constitution of Florida allows up to _____ for the homeowner's homestead exemption
Example of a Florida Homestead exemption
If a property is assessed at $250,000, it will only be taxed as a
The additional $25,000 of possible homestead exemption, does not apply to
school taxes
A homestead exemption may be applied to the
primary residence
When the reduced valuation is applied to tax rates, the homeowner enjoys a consequent reduction in
ad valorem
An ad valorem tax is a tax based on the value of
real estate or personal property
An ad valorem tax, Latin for according to value, is a tax based on
the value of real estate or personal
Save Our Homes limits increases in the assessed value to no more than
3% or the Consumer Price Index, whichever is
C P I stands for
Consumer Price Index
transferred, the homeowner is protected by the
3% annual cap
One $500 homestead exemption include
widows and widowers, not remarried
Disabled Veterans. A disability of 10% or more entitles such veteran to an additional
$5,000 worth of exemption
taxes on
homestead property
known as the
local option for age 65 and older
No tax exemptions are automatic. They must be applied for in person initially between
January 1st and March 1st.
In order to preserve Florida's farming community, the legislature in 1959 passed the
Green Belt Law
The Green Belt Law taxes agricultural land at a lower rate than the
encroaching cities around the land, and
Without the protection from the Green Belt law, owning farm land and paying taxes would be
stops speculators from
purchasing farm land and paying taxes at a lower rate
Gardens and lawns do not fall under the category of
farm lands for agricultural use
One requirement for the Green Belt protection is
the length of time the land has been so utilized
With regard to the Green Belt law, In 1994, Florida Statutes were amended with amendment 10 to provide
assessment cannot exceed
three percent of the assessed value of the property for the previous year, or the
With regard to the Green Belt law, if there is a change in ownership, the property must
be re-assessed as of January
With regard to the Green Belt law, Amendment 10 is limited to
residential property only
With regard to the Green Belt law, Amendment 10 applies only to property with a
homestead exemption
With regard to the Green Belt law, the limit is on the assessed value of the property, not the
taxes paid. When the
assessed at market value in the year of
construction . The additional value will be capped the following tax year
With regards to establishing the Tax Rate, an operating budget is prepared each year by
each tax district
sources of the income are evaluated. Once this is done, the tax district is able to
predict what will be needed
With regards to establishing the Tax Rate, the amount of real estate taxes paid to a tax district comes from
or the loan does not have
principal, interest, taxes, and insurance
Lenders are well aware of the dangers of
a homeowner not paying taxes, so a majority of lenders escrow taxes
Florida taxes are due and payable
November 1st each year and they are delinquent if not paid by April 1st of
Florida taxes are due and payable November 1st each year and they are delinquent if not paid by
April 1st of the
A list of delinquent real estate taxes is published
in a local paper
Unpaid taxes become a tax certificate, which is offered to the public for sale at auction with bids opening at
and going down. The successful bidder is the one who is willing to accept
the lowest interest rate on the
The owner of a property may redeem his property by
paying all taxes, costs and interest to the county within a
second year, can be
foreclosed at the request of the certificate holder, which is the bidder
As in any foreclosure, A tax certificate property is sold on the courthouse steps to the
highest bidder and
property escheats to the state
With regard to Federal Income Taxes, the sale of real estate may result in
capital gains taxes under certain
circumstances. To determine if
gain is taxable, three items must apply
gain taxes, in the sale of real estate, is
if it is a residence and you owned the home for at least two years
taxable, he is entitled to a
$250,000 exclusion as a single person or $500,000 as a couple filing jointly
This is no longer a one time exclusion, relating to Capital Gains, nor is it limited to those
55 and older
do this, the following steps are necessary
Know the sales price. Know the amount of selling expenses. Subtract
price is called
the basis. The homeowner is allowed to add certain expenses to the basis
certain expenses to the basis as settlement costs, such as
abstract fees, charges for installing utility
Any charges in connection with getting a mortgage loan cannot be included in
determining the basis of a property
Example of Basis Calculation
You paid $75,000 for the home plus $1000 in allowable costs for closing. The basis
One of the items that may be included in determining the basis of a property are
additional and other
With regard to finding the adjusted basis of a property, one item that will decrease the basis is
gain you
One advantage to homeowners in income tax is
mortgage interest deduction on the principal home and second home
I R A stands for
individual Retirement Arrangement
The Potential Gross Income is
the amount the property can possibly earn in one year, such as the number of
The Effective Gross Income is
the amount of gross income less the vacancy rate, since properties may not be 100%
The Net Operating Income is
the amount of income received after operating expenses, not including mortgage debt,
The Prior to Tax Cash Flow (Cash Throw Off) is
the amount of cash received and actually flowing through the
Prior to Tax Cash Flow is also called
Cash Throw Off
The After Tax Cash Flow is the amount the investor has to reinvest or keep for himself after the
taxes have
Taxes are imposed only on taxable income which is that amount after
all allowable deductions and depreciation
Because of changing tax laws, and the possibility for tax shelters, it is important that
the investor have a
Understanding what to do about reserves for replacements, interest and depreciation are all
key issues that
The installment sale, contract for deed or land contract, can be an effective method of
avoiding excessive taxation
investor is limited, and taxes are paid on the
smaller amounts
The seller of an installment contract is the
The buyer of an installment contract is the
Like kind exchanges, or 1031 Exchanges, are done to
defer capital gain taxes on certain qualifying properties
In Like kind exchanges, or 1031 Exchanges, generally, the tax is deferred rather than
having to pay capital gains
Example of Like kind exchanges, or 1031 Exchanges
An investor can exchange investment real estate for
The role of the real estate professional is to
discover like kind properties for investors and help the investor
It is up to the certified public accounts and the tax accountants to handle all the details of
tax deferment on
correctly for
investment and tax purposes
property used to make up the difference between the property value or equity is called
Examples of Boot
are personal property like a boat or car, good will, or mortgage debt relief
With regards to Like kind exchanges, or 1031 Exchanges, Boot is
taxable in the year of the exchange and may not be
A speculator is
a person who trades, commodities, currencies, among other things, with a higher than average risk in
A derivative is a
financial contract which derives its value from the performance of another entity such as an
A commodity is a
marketable item produced to satisfy wants or needs
Real estate taxation refers to
the taxation of real estate as property
Real estate property taxes are imposed by
taxing entities or taxing districts at county and local levels of
There are no federal taxes on
real property. The Constitution of the United States specifically prohibits such
The federal government can impose a
tax lien against property for failure to pay any tax due the Internal
States may legally levy taxes on real property, but most delegate this power to
counties, cities, townships and
Some states place limits on
how local governments may levy such taxes
States may impose a tax lien against property for
failure to pay any real property taxes which the state has
It is common for a county to collect all real property taxes and distribute it among
the other taxing bodies
County and local governments establish tax districts to collect funds for
providing specific services
areas is the
school district
In addition to tax districts, other important tax districts are those for
fire protection, community colleges,
In addition to generally established tax districts, a local government authority may
establish a special tax
A special tax district might be created to
fund extension of municipal water service to a newly incorporated
General property taxes are levied on an ad valorem basis, meaning that
they are based on the assessed value of the
General property taxes are levied on an
ad valorem basis, meaning that they are based on the assessed value of the
Assessed value is determined according to state law, usually by a
county or township assessor or appraiser
The actual tax, though based on assessed value, may be derived as a
legislated percentage of the assessed value
Taxes on land and improvements may be assessed
Ad valorem taxes are paid
boundaries, excluding
partially or totally exempt properties
Tax base =
Assessed values - exemptions
Taxing entities generate the annual revenues they require by
levying taxes on the tax base
The tax rate, or millage rate, determines
how much of a tax levy the tax base will receive
The tax rate for each taxing entity is calculated by
dividing the amount of revenue required by the tax base.
purposes of
levying taxes. This valuation process results in an assessed value. Assessment practices differ from
Assessors use a sales comparison approach to assess the value of
Assessors use a cost approach to assess the value of
The role of the assessor in the taxing process is limited to
making the valuation and notifying the owner of the
Some taxing bodies recognize that local assessments can lead to
unfairly high or low values for properties in
may establish
equalization factors to level out the unevenness of valuations
Example of Equalization Factors
If assessed values of properties in one county are consistently ten percent below
Property owners may object to the assessed value of their property, but not to the
tax rate
An owner usually has a certain period to protest property tax amounts after receiving notice of the
With regard to property taxes, and according to local law, a property owner must present evidence that
the assessor
Typical evidence that the assessor made an error to a review board or appeal board would include
market data
With regard to property taxes, an owner who is dissatisfied with the actions of the appeals or review board can
A homestead is a
parcel of real property that is owned and occupied as a family home
Some states exempt a portion of the value of the homestead from judgments to protect families against
eviction by
States and counties may exempt a portion of the assessed value of the principal residence from
property taxation
A property owner generally qualifies for a homestead exemption by meeting two criteria, they are
is head of a
Depending on state law, home owners may have to apply every year for the exemption, or they may
receive it
Most states exempt certain types of property from
property taxes
Certain classes of property owner may also be exempted or have a reduced liability. One that is exempt is
Miscellaneous property tax exemptions may be granted to classes of property owners, such as
senior citizens,
forced to limit their budget requirements, unless
there has been a sufficient increase in tax base to produce
Payment deadlines of taxes are usually set by
law and differ from region to region
With regard to tax bills
Different taxing bodies may have different fiscal years, and as a result may issue
A Special Assessment is a
tax levied against specific properties that will benefit from a public improvement
Common examples of Special Assessments are
assessments for sidewalks, water service, and sewers
Special Assessments are based on
the cost of the improvement and apportioned on a pro rata basis among
Example of Special Assessment
A dredging project is approved to deepen the canals for a canal front subdivision.
If a taxing entity initiates an assessment, the assessment creates an
involuntary tax lien
assessment creates a
voluntary tax lien
Special Assessments of taxes are usually paid
in installments over a number of years. However, taxpayers generally
the tax lien in several ways, depending on
what the law prescribes
apply for a
tax deed
application for a tax deed causes the taxing agency to institute a
tax sale or tax foreclosure
A tax sale is frequently some type of
auction. If the tax has not already been paid
defaulted taxpayer has the right to
buy back the property and reclaim title
other charges before the tax sale occurs, this right is known as an
equitable right of redemption
If a taxpayer can redeem a property after a tax sale auction, this right is known as
a statutory right of