Understanding Rules of Portability

By Edward M. Hanna, CPA

On Jan. 29, 2008, Floridians approved an amendment for homeowners to transfer their “Save Our Homes” cap to new homesteads. For simplicity’s sake, “Save Our Homes” cap is called “portability.” “Cap” is the monetary difference between Market (Just) Value and Assessed Value for homestead property. Portability’s purpose is basically twofold:

1) To not penalize Florida homeowners who leave their homestead residences by preserving the cap in moving to new homesteaded residences, and

2) To encourage the sale of residences for those who might otherwise find the realty taxes too high to acquire other residences.

As so frequently happens, the economy changes after tax law enactments try to address a particular issue. However, the benefits of portability still can be a benefit, even though the prices of new residences have dropped dramatically. Maybe it is even more valuable as the $500,000 maximum cap allowance will cover more new homesteads than it would have before portability.

Some ground rules to determine eligibility for portability are:
1) It applies solely to homestead changes in 2007 or later.

2) At least one owner from the previous homestead property must be an owner of the new homestead property.

3) $500,000 is the maximum cap that can be applied to the new homestead.

4) A person does not need to acquire a new homesteaded residence to qualify. A person needs only to establish a new homestead, such as making a vacation home the homesteaded residence.

5) It applies solely to properties located anywhere in Florida. The previous and new homesteads can be in different counties.

6) A person needs to complete form DR-501T, “Transfer of Homestead Assessment Difference,” to apply for portability. This is done when applying for homestead, as homestead and portability require separate applications.

While cap portability computations initially may seem quite simple, the computations can be more complex when downsizing, deleting or adding owners. There are 12 different calculation scenarios published under Emergency Rule 12DER 08-21. Some examples are:

1) Upsizing when all owners and homesteaders move to a new residence.
Previous homestead with two owners:
Just value $250,000
Assessed value 200,000
Cap $ 50,000

New homestead:
Just value $300,000
Cap applied 50,000
Calculated assessed value $250,000

This is an upsize. Therefore, the full amount of preview homestead cap applies up to $500,000.

2) Downsizing when all owners and homesteaders move to a new homestead.
Previous homestead with two owners:
Just value $250,000
Assessed value 200,000
Cap $ 50,000

New homestead:
Just value $210,000
Calculated cap 42,000
Calculated assessed value $168,000

In a downsize, the calculated cap is determined at the same proportion that cap of the previous homestead was to the just value. Previous $50,000 / $250,000 = 20 percent. Calculated cap, 20 percent x $210,000 = $42,000.

3) Downsizing when owners each own an equal share of previous homestead but only one of the owners establishes a new homestead. The same formula applies from example two, adjusted for the change in percentage of ownership.

Previous homestead with two equal owners:
Just value $400,000
Assessed value 300,000
Cap $100,000

New homestead with only one of the previous owners:
Just value $250,000
Calculated cap 31,250
Calculated assessed value $218,750

Proportion of cap of previous homestead to just value $100,000 / $400,000 = 25 percent, which is applied to new homestead’s just value, 25 percent x $250,000 = $62,500, which is then adjusted for proportion of retained ownership ½ x $62,500 = $31,250.

4) Joining and upsizing of two previous homesteads with single owners into one new homestead.

Previous homestead No. 1 with one owner:
Just value $400,000
Assessed value 300,000
Cap $100,000

Previous homestead No. 2 with one owner:
Just value $500,000
Assessed value 350,000
Cap $150,000

New homestead with two owners:
Just value $600,000
Calculated cap 150,000
Calculated assessed value $450,000

The greater of the two caps of the two previous homesteads applies to a maximum of $500,000.

Other important rules logically flow from portability.

1) Even though the application for homestead and portability are filed simultaneously, homestead for the new residence in the year of transfer cannot apply. Homestead can apply solely to one occupied residence as of Jan. 1. Homestead for the new residence will apply for the succeeding year.

2) The other exemptions for widows, seniors and disabled persons still apply to the new homestead.

Most questions can be answered by reviewing the examples published by the Florida Department of Revenue. Another source is the exemption department of the applicable county appraiser.

Information for this article was obtained from 2008 Chapter 193, Section 155 Florida Statutes and from “Portability: Frequently Asked Questions,” developed by Rob Turner, CFA, Hillsborough County Property Appraiser, and by Tim Wilmath, MAI, Hillsborough County Director of Valuation. Tim Wilmath was also kind enough to review the article.

Edward M. Hanna is founder and of counsel to Hanna, Lemar & Morris, CPAs, P.A. with offices in Tampa and Brandon. He is a member of the Florida State Tax Conference Planning Committee.

Return to Blogs