Amendment One

The big agenda item on most homeowner's minds is the upcoming primary and the tax modifications of Amendment One contained on the same ballot. Amendment One comes before the Florida voting public this January 29th. Early voters have already begun to cast their votes.

Governor Crist and the Florida Association of Realtors are supporting the tax changes, but you would expect any legislation which will help spark the real estate industry to be supported by Realtors. Of course, most homeowners with a house on the market are likely to support the amendment too. But is the short and long term effect of these changes actually best for Floridians?

Like most changes, you can find good and bad in the proposal and it is obviously a matter of perspective. There is good in the proposed changes. However, many Floridians believe the modifications do not go far enough. Others feel the infrastructure (roads, education, etc) will suffer with no major improvement to their tax situation.

The government watchdog group, Florida TaxWatch, feels Amendment One gives disproportionate tax relief and is unconstitutional. They feel it favors long-time Save Our Homes properties and gives very little benefit to the non-homesteaded properties that have seen the greatest increase in taxes. They plan to challenge its constitutionality if it passes. Governor Crist and state legal gurus feel the amendment stands on a proven foundation and will withstand any challenge.

In this episode we will look at the tax modifications, how they will affect most homeowners, and we'll break down the pro & cons.

First, let's look at what is contained in Amendment One:

Portability. This is the big one for homeowners who are looking to sell their homes and either upsize or downsize their homes. The current tax law protects homesteaded residents by limiting any tax increase to 3% annually. This adds up to big savings for homesteaded owners. For example, a $375,000 valued waterfront home which sold for $135,000 in 1999 and was homesteaded is only paying taxes on $176,000, a tax savings of 53%. However, this savings is lost when the owner sells his home and buys the larger home down the road. The owner must start the homestead process all over again at the current appraised value of the new home. This keeps many homeowners trapped in their current homes.

Amendment One will relieve this trap by allowing the homeowner to transfer, or port, the amount of homestead they currently enjoy to their new home. Here’s how it works in a nutshell;


Example: Porting an existing homestead exemption to a more expensive home:

John has lived in his current home for 10 years. His home has a fair market value of $500,000 but because it has been homesteaded this entire time he is only taxed on $200,000. He is enjoying $300,000 in homestead exemption. If Amendment One passes, when John buys his new $800,000 home he will only have to pay taxes on $500,000 ($800,000 - $300,000 = $500,000).


Example: Porting existing homestead exemption to a less expensive home:

Mary has lived in her home for 25 years and is now looking to downsize to a villa in a planned community. Her current home has a fair market value of $400,000 but due to her homestead exemption she is only paying taxes on $175,000. Mary enjoys a $225,000 homestead exemption. Her new villa is appraised at $300,000. Since she is buying a lesser valued home a ratio is applied when porting her homestead exemption. To calculate this ratio, simply determine what percentage of discount Mary is currently enjoying. Take her current homestead exemption of $225,000 and divide it by her current home’s value of $400,000. This equals a 56% exemption ($225,000 ÷ $400,000 = 56%). Apply this 56% to the new villa’s value of $300,000 and Mary will get a $168,000 homestead exemption so she will only pay taxes on $132,000 ($300,000 - $168,000 = $132,000).

An owner can transfer up to a maximum of $500,000 in homestead exemption.

There is actually more good news for both John and Mary. If Amendment One passes, the current $25,000 default exemption will double to $50,000. So in addition to the exemptions calculated above, John and Mary will also receive an additional $50,000 exemption. John would now only pay taxes on $450,000 and Mary would pay on only $82,000

Another important feature of Amendment One affects non-homesteaded owners. For the first time, non-homesteaded owners will enjoy a value increase cap of 10%. Proponents tried to obtain even more for non-homesteaded owners but had to settle for 10%. In the recent past, homes saw huge increases of 100% or more in a span of 3 years. Waterfront home values saw even more amazing increases. This 10% would go a long way in relieving the tax burden of out-of-state owners and owners who are buying with expectations of retiring to the home in the future. This 10% cap also helps Sellers because it provides an additional incentive to out of state and second home buyers.

So far it all sounds good, huh? However, there is always some downside to tax cutting. Somebody has to pay to continue Florida’s growth. Yes, even in the midst of this downturn in the home market, Florida is still growing. The number of Florida’s children is still growing so new schools are needed. More cars are driving on Florida’s roads so new and wider streets and highways are needed. These and other much needed infrastructure projects will be postponed or cut due to the reduced tax base. Underpaid teachers will continue to teach with a shortage of material. The overburden police forces will continue to be stretched thin. You’ll likely have to wait a little bit longer on lines at the Department of Transportation to renew your registration as well as longer waits at other municipalities until a more comprehensive and long term plan is derived.

There’s only so much money to go around and not a single agency will likely get the amount they are asking for or need. For the most part, teacher unions oppose Amendment One as does the League of Women Voters.

But consider what will happen if Amendment One is voted down - and it is by no means a shoe-in. Remember, Floridians recently amended their constitution to require a 60% voter approval for any new amendment (ironically, it took only a 50% approval to pass the 60% amendment proposal). If Amendment One is voted down, there will be absolutely zero homeowner tax relief until 2010. This is because legislators will have to go back to the drawing board to come up with a new plan and, in the best case scenario, this will not get before the voters until 2009 and it will be practically 2010 before it would be in effect (if voters pass it).

Amendment One is far from perfect. There is room for improvement. But can Florida wait until 2010 for tax reform? My take on this is to pass Amendment One while continuing the effort for more tax (and insurance) reform.

I recommend you vote Yes on Amendment One.