I think most people understand that taxes are required to keep the lights on.  The roads need to be paved, the common elements need mowing and upkeep, and we need city/county employees to manage and keep it all working properly.  It pays the first responders who save lives, and builds the various parks and recreation facilities.  Most also likely understand that they are taxed when they own a home through Property Taxes to help fund all of these expenses.  You may not, however, understand how the rates are determined and why those amounts change when you purchase a home.  This article will aim to shed some light on this and bring you up to speed on how taxes are done for residential properties in Florida.

The great state of Florida chose to tax property in lieu of charging state income tax, as means to fund portions of our operational government.  From a high level, the amounts paid in taxes vary by the value of both the property and the land.  These taxing amounts will also vary from city to city and state to state.  Some of you may have already read portions of this in our write-up that discussed how to research a house you are interested in buying.

Whether you are gifted the house as part of a trust, or purchase the home, taxes to the local municipality are owed.  Failure to pay these taxes will force the municipality to sell the rights to you owed balance to the general public through a tax lien sale.  This is to ensure that the local government has the money it needs to operate.  Continued failure without repayment will likely end up with the government filing foreclosure and selling your house at auction, so pay your bills! 

How are Taxes Calculated?

In short, the rates are determined by the local tax assessor’s office.  A value is determined for the property as of January 1 each year.  They review and apply any exemptions, limitations or classifications that may alter or reduce the taxable value of the house/property.  The average real property tax rate in Florida is 0.98%, which is lower than the national average of 1.08%.  The average total tax bill in the state is $1,752.  The tax rates are practically implemented in terms of “millage rates”.  These are 1/10^th of a percent.  This equates to $1 in taxes for every $1,000 in property value.  For comparison purposes, in Hillsborough County, the real property tax rate is 1.02% and the average tax bill is $1,836 while those in Pinellas are 0.94% and $1,566.  The lowest I saw in Florida was in Washington County (0.56% and $699) while the highest was in Sarasota and Hendry (1.23% and $1,856 and $978) according to Smart Asset.  If you are not directly aware of a Property Tax payment, the cost/fee may have been built into your bank loan terms (they collect the funds with every payment and place it in escrow to distribute when the time comes for the payment). 

Assessments of the various properties occur on a 1 to 5-year cycle (typically) and vary by municipality.  These assessments look for any striking changes to the use of the property, the condition, and aims to document any building improvements or additions (as these must be taxed).  If you are a Home Flipper, this temporary reduction in taxes may be enough time for you to unload the property and find the next one to flip.

Why are My Taxes Different?!

So some of you reading this may be doing research since you noticed a huge jump in your tax bill for the 2^nd year of your ownership.  This is because you were grandfathered in to a discounted rate in year 1 from the seller.  The “basis” of their tax bill occurred at a time where the property likely had a lower value, and as such so was the tax bill.  They also may have had a “Homestead Exemption” or possibly other limiting factors to reduce the tax burden.  While you were on the receiving end of those in the first year, the tax collector will be doing a correction to start charging you the correct taxes after the next assessment.  This likely means thousands of additional dollars expense, that you will be expected to pay into the future. 

How to Determine Your Tax Bill

If you are interested in a property and ready to extend an offer, I recommend you visit or call the local Property Appraiser’s office.  There, you can provide the property address and they can tell you what you should expect for a tax bill going into the future.  Obviously, they would have to base it on the current millage rate, which may adjust slightly from year to year.  This, however, will take into account any limitations or applications that pertain to you (and help remove those that you can expect to be gone from the rates you are getting in year #1). 

Closing

So do your homework.  Find out what you should be expected to pay into the future, to ensure that you can comfortably pay for the house and the various taxes and fees.  The property appraiser employees, and your selected Realtor, are also great resources to help you understand this topic.  As always, if you have any questions or concerns you can reach out to Red Flag Home Inspection anytime.