Taxes heat up for snowbirds

Everyone likes to see the value of their property increase, right? Well, not always. Canadians who own a winter retreat in Florida may well cringe when they pick up a paper and read that housing prices have jumped. The reason: higher valuations mean increased property taxes.

All out-of-state property owners get dinged when Florida house prices rise, but Canadians are especially vulnerable because of the weak loonie. In fact, many Canadians have been forced to sell because they simply cannot afford the ever-increasing tax burden.

My own case provides an example. We bought a house in Fort Myers Beach on the Gulf Coast in June 1997. At that time, the Canadian dollar was worth about $0.72 US. Since then, property values on the island, which lies between Sanibel and Naples, have about doubled.

So has our tax bill. Add in the fact that our currency has declined in value by about 10 per cent over the same period and you can see the problem.

Meantime, our neighbours on both sides have had their tax increases capped at three per cent annually despite the surge in property values. That’s because they are domiciled in Florida and live in their principal residees.

Homestead exemption gives snowbirds a tax headache
Back in the early 1990s, Floridians approved an amendment to the state constitution known as the Save Our Homes program. This program creates a homestead exemption for principal residences. Here’s how the website of the Lee County Property Appraiser explains the arrangement:

“Save Our Homes is a constitutional benefit approved by Florida voters in 1992, which places a limitation of three per cent on annual assessment increases on homestead exempt properties. For all property granted homestead exemption in the prior year, that assessed value will be the base value for the implementation of Save Our Homes. Thereafter, the assessed value will not increase more than three per cent or the percentage change in the Consumer Price Index, whichever is less.”

Next page: Consider taxes before buying property

Florida property taxes are based on market value, which is assessed annually. So there is less than a one-year lag between the time prices rise and the time you see the impact on your bill. The other thing to bear in mind is that, when a residential property is purchased, the Homestead Act calls for the assessed value to be bumped up to the current market value — no matter who is selling and who is buying. So be prepared for “tax sticker shock,” as one spokesman for the Florida Department of Revenue puts it, when you get your first property tax notice after buying from a resident.

The effect of the homestead exemption is to shield resident property owners from most of the impact of rising property valuations, leaving non-resident owners to assume the full burden. In the process, the skyrocketing taxes paid by non-permanent residents produce windfall revenue for all the relevant taxing authorities.

This system can create huge tax differentials between adjacent or neighbouring properties based on the owner’s place of residence. Critics of the plan contend that this is not only unfair but also economically unsound.

Change is unlikely
However, no politician is likely to take up the cause of non-resident owners. The reason is very simple: we don’t vote. Florida residents are quite content to let the outsiders shoulder virtually all<ital> of the financial load. It is a classic case of eating your cake and having it too: they enjoy the profits inherent in rising property values without having to pay the price.

Anyone thinking of buying a Florida residence needs to be aware of the effect of the homestead exemption. One step you might consider is, contrary to the usual practice in property-hunting, seeking an area where prices are stable or even falling. If keeping annual carrying costs under control is important to you, avoid areas where prices are rising sharply or appear poised to move up. Of course it’s nice to be able to say your place doubled in value but you only collect the profit when you sell. Meantime, you’ll be paying through the nose so that Florida residents can keep living in their own little low-tax dream world.