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Property Tax
There are three property-based taxes in America: real property tax for homeowners, a tangible tax on business assets (which includes the contents of a rental home), and an intangible tax on stocks, bonds, mutual funds and money market funds. Real estate taxes are often referred to as ‘ad valorem’ taxes, which simply means taxes based on the value of property.
Real Property Tax: Real property tax is a tax levied annually on property owners to finance local services such as primary and secondary education; police and fire services; libraries; public transport subsidies; waste disposal; highways and road safety; maintaining trading standards; and personal social services. The value of a property is assessed on its current market value, location, size, cost, replacement value, condition, improvements, income and net proceeds from the previous sale, and the highest and best use in the immediate future and its current use. Under Florida law the assessment of the value of real property must be equal to its full market value (and not a percentage as in many other US states). Property values are set by each county and are supposed to be reviewed by law every three years (in reality it’s done less frequently) unless requested earlier by a property owner. Real property tax is based on the value of a property on the preceding 1st January. During the year of construction of a new home, owners usually pay only a ‘lot’ tax and not the full amount.
Property taxes are calculated by the millage rate (so much per thousand dollars), with a mill equaling one-tenth of a cent or $1 per $1,000 of the taxable value of a property. For example, if a home is valued at $100,000 and the millage rate is $15, the annual property tax bill will be $1,500. Tax varies between 1 and 3 per cent of a property’s value and depends largely on the level of sales tax and other taxes in a county. Taxes on the average Florida home vary from $75 to $ 175 a month, depending on the area, with the millage rate on most properties between $ 15 and $20 (rates range from around $12 to $26). Most counties contain municipalities with millage rates above the average (usually a few mils higher) to pay for special services. There can be 20 or more different millage rates in a single county. Taxes are lower in ‘unincorporated’ areas, i.e. areas that aren’t incorporated within a city, where fewer services are provided. Under a new rule introduced in 1995, residents’ property value assessments are limited to a maximum increase of 3 per cent a year, unless a property is sold, in which case a new assessment is made. However, this rule doesn’t apply to non-residents and businesses.
In many states, you can claim a homestead exemption off your home’s value (for example 25000$ in Florida). For example, if your property is valued at $100,000, the taxable value will be $75,000 after deduction of the homestead exemption. Assuming a millage rate of $15, your property tax would be 75 x $15 or $1,125. The deadline to file for homestead exemption is 1st March. There are a range of property tax exemptions for residents including senior citizens and blind and disabled persons with low incomes. The system is complicated and variable and the only way to accurately determine your tax bill is to ask the county tax collector to calculate the tax for a particular property value and area. You can visit the county property appraiser’s office and obtain a copy of the tax records for a home you re planning to buy and can obtain a copy of the previous bill from the Tax Collectors’ Office. Note, however, that the change of ownership of a property often results in a new appraisal, so when buying a property you shouldn’t assume that the appraisal will remain the same. If you’re buying a new home, the builder should be able to give you the information necessary to obtain an accurate assessment. Note that the type of construction can influence the tax to be paid, so you should check prior to purchase.
One way to reduce your property tax is to appeal against your property assessment, which can cut your local tax bill by as much as 1 0 per cent. Check your property record card at your local assessor’s office. If you find that your assessment is based on incorrect or incomplete information, ask the assessor for a review. Tax appeal deadlines vary depending on the county and community. If you appeal against your property value, be prepared to back it up with some convincing evidence, e.g. lower assessments on many similar properties and incorrect details, particularly wrong property and land dimensions. If necessary, hire a professional appraiser. Note, however, that a county assessor is permitted a margin of error of 1 5 per cent.
Property tax bills are sent out in the first week of November and are due for payment by March 31st. There’s a discount of 4 per cent if the bill is paid in November, 3 per cent in December, 2 per cent in January and 1 per cent in February (none in March). Payment can also be made by installments. If you pay through an escrow account your bank will budget for payment by 1st November. If you have a mortgage your lender will usually establish an escrow account to pay your real property taxes and will add an appropriate amount to your monthly mortgage to pay the tax (and property insurance). You should receive an annual statement in January from your mortgage company showing the taxes and insurance premiums paid. If you fail to complete a tax form, your county may assess a percentage based on the real estate value of your property, which can be as high as 4 per cent on a condominium and 6 per cent for a single-family home. There’s a penalty for late payment and late payers may be named in local newspapers. If tax isn’t paid, a county can place a lien (embargo) on the sale of a property and if taxes remain unpaid for a long period the property can be seized and sold for non-payment.
There are a number of books designed to help you reduce your property taxes including How to Reduce Your Property Tax: A Comprehensive Guide to Residential Property Taxes in the United States by Frank J. Adler (Harper Business Publishing), Tips and Traps for Saving on all your Real Estate Taxes by Robert Irwin and Norman H. Lane (McGraw-Hill Companies) and How to Fight Property Taxes published by the National Taxpayers Union (703-683-5700 site: www.ntu.org).
Intangible Tax: Intangible tax is a state ‘wealth’ tax on individuals with intangible assets above $20,000 and couples whose assets are over $40,000. Intangible assets include stocks, bonds, accounts, mutual funds and money market funds, notes and loans receivable, annuities, chattel mortgages on real estate outside Florida, and all other classes of intangible personal property. It doesn’t apply to cash assets such as bank deposits, IRAs, certificates of deposit or annuities. The intangible tax rate is one mill ($1 per $1,000) of assets. It’s assessed on the value of your assets on January 1st of each year. No tax is due if your liability is less than $5, but a return (DR-601-I) must be filed. Bills are mailed during the first week of January and are payable by 30th June. There’s a discount of 4 per cent if tax is paid in January or February, 3 per cent in March, 2 per cent in April and 1 per cent in May (none in
June). For more information about intangible tax contact the Department of Revenue
(1-800-352-3671 or 850-488-6800).
Tangible Personal Property Tax: Tangible tax is a county tax levied on business and personal property that isn’t used for ‘family or household comfort’, including everything used in a business except vehicles and real estate. Tangible tax applies to three types of property: business equipment, attachments to mobile homes on rented land, and articles contained in properties that are rented (such as furniture, washers, dryers, stoves, refrigerators, lawnmowers, computers and fax machines, etc.). All companies, corporations and individuals who lease, manage, or have control of any tangible personal property are required to file a ‘Tangible Personal Property Tax Return’ (form DR-405) with the County Property Appraiser’s Office by 31st March each year.
It includes anyone earning an income from property through rentals. If you own a home in Florida which you let for profit, you should keep receipts for all major purchases of furniture, appliances and household goods. Tangible tax is usually payable on any property that’s let on January 1st, although in some counties it’s based on the amount of time a property is let. Bills are sent out at the same time as real property tax bills (see above) and the payment schedule and discounts are also the same~ There’s a penalty of 10 per cent of the tax due for failure to file a return and a penalty for late filing of 5 per cent of the tax due per month up to a maximum penalty of 25 per cent. There’s a certain amount of confusion over tangible tax and you’re likely to receive conflicting information depending on who you ask. The best source of accurate information is your local county tax office, although you should still insist on an answer in writing. You can also call the Florida Department of Revenue for information about state taxes (1-800-488-6800). Find More information about property taxes >>
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