Many first-time Florida home buyers are shocked when they receive their property tax bill in November of their second calendar year of ownership. Nobody warned them that it might be unexpectedly high. Very high.

Properties in South Florida (not sure about the rest of the state) are appraised every year on January 1. The amount of property tax = (appraisal value- homestead exemptions) x tax rate. Homestead exemptions are a minimum $50,000 for properties purchased for at least $75,000. (See a previous blog post for a homestead refresher.) 

Okay, so far so good. Now we dig deeper. Homesteaded properties assessed values cannot increase more than 3% a year. For example, it could be a booming seller market, but the homesteaded property owner is protected from paying more property tax. HOWEVER, a future buyer will only benefit temporarily from the seller's past homesteading savings.

Property tax bills are mailed out November 1 to the owner of record. If you purchase a home before November, the seller will credit you their estimated pro-rated share of the tax (based on the number of days they've lived in the house that year), and you pay the bill. If you purchase after November 1, the seller pays the tax bill, and the buyer credits the seller at closing for the buyer's pro-rated share of the tax (based on the number of days remaining in the year.)

So for the first calendar year, your pro-rated tax share will be based on the seller's assessed value which may have been kept artificially low by the annual 3% cap on increases. HOWEVER, on Jan 1 of the buyer's second calendar year, the appraised value becomes the purchase price. SUPRISE! Even after deducting $50,000 in homestead exemption, the new assessed value can be hundreds of thousand dollars higher than last year's. 

Suppose the seller owned the home for 30 years and experienced some periods of rapidly rising neighborhood values. His initial $100,000 investment might easily be worth the $300,000 that the buyer paid. His property taxes were kept low because of the 3% cap, but you reset the starting point on Jan 1.

Please keep this in mind if you're thinking of buying a South Florida home. Your Realtor and Loan Officer may forget to mention it. If you are escrowing property tax, your monthly mortgage payment will shoot up in your second calendar year. Plan for it!