Chapter 18 - Taxes Affecting Real Estate Flashcards
In the property tax schedule, what happens on January 1st?
Tax year begins
Property assessed
Lien attached
Tax exemption filing period begins
In the property tax schedule, what happens on March 1st?
Tax exemption filing period ends
In the property tax schedule, what happens on April 1st?
Property taxes for previous year become delinquent
In the property tax schedule, what happens on November 1st?
Property taxes due for the current year
In the property tax schedule, what happens on December 31st?
Current tax year ends
What is included in property taxes?
City, school, county
What does “ad valorem” mean?
According to value
Taxes are paid in:
Arrears (at the end of the tax year)
On January 1st each year, property taxes become:
A lien on all real estate in Florida
The state supreme court has interpreted Florida statutes as requiring that all real property be assessed at:
Just Value
What is just value?
The fair and reasonable value based on objective valuation methods
What is assessed value?
The value of a property established for property tax purposes
What are the steps to protest an assessed value?
- Seek an adjustment by contacting the county property appraiser or a representative of that office
- If request for adjustment is rejected, the owner may file an appeal (petition) with the Value Adjustment Board
- Litigation in the courts
What properties are immune from property taxes?
City, county, state, and federal government properties (county courthouses, military facilities)
What properties are exempt from property taxes?
Property belonging to churches and nonprofit organizations
What properties are partially exempt from property taxes?
Homesteaded property
How do you find taxable value?
Begin with assessed value and subtract appropriate exemptions
What is required to be eligible to file for the homestead tax exemption?
Applicants must reside in the home and have legal title to the property as of January 1st
Homeowners are entitled to a _________ homestead exemption from the assessed value of the home for city, county, and school board taxes.
$25,000
Homeowners are entitled to an additional ___________ exemption from city and county taxes (but not school board taxes) on the property’s assessed value between _________ and ________.
$25,000; $50,000; $75,000
What is required for a homeowner to be eligible for the second tax exemption?
Assessed value must be more than $75,000
Who qualifies for an additional $500 exemption from the assessed value of their homesteaded property?
Widows and widowers
Legally blind persons
Nonveterans who are totally and permanently disabled
Veterans who are at least 10% disabled by military service-connected misfortune are entitled to an additional _______ exemption.
$5,000
What is the special exemption for quadriplegics?
A homestead owned by a quadriplegic is exempt from taxation
What is the order for calculating the applicable tax exemptions?
- Base $25,000 homestead exemption
- $500 exemptions for widows and widowers, legally blind persons, and nonveterans who are totally and permanently disabled; $5,000 exemption for disabled veterans
- Additional $25,000 homestead exemption
What does the Save Our Home amendment of the Florida Constitution state?
Caps how much the assessed value of homesteaded property may increase in a given year
3% annually or the percentage change of the Consumer Price Index (CPI) for the preceding year, whichever is less
What is a mill?
One one-thousandth of a dollar (or one-tenth of a cent)
How many mills are in a dollar?
1,000
Using the tax rate of .010 for a home assessed at $180,000 that has qualified for homestead tax exemption, the calculation of the county property taxes is:
180,000 (assessed value) - 50,000 (homestead exemption) = 130,000 (taxable value)
Mr. Pasco owns a home in Whipsaw, FL, in Brevard County. The city tax rate is 8.7 mills, the county tax rate is 9.2 mills, and the school board tax rate is 6 mills. Mr. Pasco is legally blind. He has qualified for homestead exemption. His home has been assessed at $165,000. What must Mr. Pasco pay in property taxes?
$2,886.55 total taxes due
- $25,000 homestead exemption applies to the assessed value up to $50,000
- Apply the additional $500 exemption because the homeowner is legally blind
- An additional $25,000 exemption applies to the assessed value greater than $50,000 for city and county taxes only - school board taxes must be charged on this $25,000 increment
25,000 + 500 + 25,000 = 50,500 total homestead exemption
$165,000 - 50,500 = $114,500 taxable value
8.7 + 9.2 + 6 = 23.9 mills = .0239
$114,500 x .0239 = $2,736.55 taxes due
$25,000 additional exemption x .006 school board mills = $150 additional taxes due
$2,736.55 + $150 = $2,886.55 total taxes due
What are special assessments?
One-time taxes levied on properties to help pay for some public improvement that benefits the property
You live on an unpaved street. The city is petitioned to pave the street and agrees to do so. The paving cost is $24 per foot, and the city is to pay 30% of the cost. If your lot frontage on the street is 100 feet, what will your special assessment be for street paving? (Don’t forget that your street has two sides and the property across the street must bear its fair share).
$840
100 front feet x $24 = 2,400
$2,400 x .7 (owner’s share of cost is 100%-30%) = $1,680
$1,680 / 2 (1/2 of the street paving cost) = $840
The city or county in government is responsible for the cost of its day-to-day operation and must collect delinquent taxes in some manner. To do this, a _______________________ in the amount of taxes owed is issued for each delinquent property.
Property tax certificate
Instead of bidding in dollars, investors bid interest rates at the auction, starting at:
18% and going down
What bidder is issued the tax certificate?
The bidder who is willing to accept the lowest interest rate
Tax laws are designed:
To encourage homeownership and give preferred treatment to taxpayers who own their residences
What deductions may homeowners-taxpayers claim rather than claiming the standard deduction on their annual federal income tax returns?
Mortgage interest
Property taxes
Interest on a home equity loan
Mortgage origination fees (points)
What is the mortgage interest deduction?
Interest paid on a mortgage loan on a principal and second home is deductible (certain limitations apply)
What is the property taxes deduction?
The annual property taxes paid on principal and second homes are deductible
What is the interest on a home equity loan deduction?
The interest paid is deductible if the loan does not exceed $100,000
What is the mortgage origination fees (points) deduction?
Points are deductible in the year they are paid, unless they are paid when refinancing a loan - in such cases, the points must be deducted over the life of the loan
What does the IRS allow homeowners to exclude on the sale or exchange of a principal residence?
Up to $250,000 of gain ($500,000 for married couples filing a joint return)
To prevent foreign sellers from avoiding the payment of taxes due on the sale of real property, the IRS requires that:
Buyers withhold 10% of the gross sale price (including cash paid and any debt assumed by the buyer)
What is the straight line method?
An equal amount of depreciation is taken annually over the useful life of the asset
What is the useful asset life for residential rental property according to the IRS?
27.5 years
What is the useful asset life for nonresidential income-producing property according to the IRS?
39 years
How do you find depreciation using the straight-line method?
Depreciable basis / useful asset life (27.5 or 39) = annual depreciation
What is the installment sale method?
The gain is received over a number of years and the seller recognizes the gain for tax purposes over the same period (as you receive it from the buyer, you pay it)
Relieves the seller of paying tax on gain not yet collected
What is the like-kind exchange?
Enables a taxpayer-investor to realize the benefits of investment and property appreciation immediately while paying taxes later
Real estate investors can defer paying taxes by:
Exchanging real property
In Florida, real property taxes are levied on a
Calendar-year basis
Each year in Florida, property taxes for the previous year become delinquent on:
April 1
The first step in protesting the assessed value of real property is to:
Contact the county property appraiser or a representative
What would be your city and county property taxes if the property assessment is $38,000, you are a Florida resident receiving homestead tax exemption, and the total tax rate is 28 mills?
$364
38,000 - 25,000 (homestead tax exemption) = 13,000
13,000 x .028 = 364
A 25% service-disabled veteran, who is 75 years of age, has been grated a homestead exemption on his $270,000 residence. How much is his homestead exemption?
$55,000
25,000 homestead exemption
5,000 disabled veteran exemption
25,000 additional homestead exemption
In arriving at a just value for agricultural property, the highest and BEST use:
Is not a factor
What statements are true concerning Florida’s Green Belt Law?
The law is intended to protect owners of agricultural property
Farmers’ lands are shielded from excessive taxation
The law has been strengthened by qualifying agricultural land annually
If a lot frontage is 100 feet, street paving costs are $40 per running foot, and the city will pay 25% of paving costs, what will be the assessment to the property owner?
$1,500
100 x 40 = 4,000
4,000 x .75 = 3,000
3,000 / 2 = 1,500
Mary is a widow who owns a home in Gainesville, Florida, in Alachua County. The city tax rate is 9.3 mills, the county rate is 9.7 mills, and the school board tax rate is 6 mills. Mary has homesteaded her principal residence. Her home has been assessed at $178,000. The amount of savings in property taxes realized by all allowable tax exemptions is:
$1,112.50 9.3 + 9.7 + 6 = 25 178,000 x .025 = 4,450 25,000 + 500 + 25,000 = 50,500 178,000 - 50,500 = 127,500 127,500 x .025 = 3,187.50 25,000 x .006 = 150 3187.50 + 150 = 3,337.50 4,450 - 3,337.50 = 1,112.50
Current state law allows the buyer of property tax certificates to collect interest up to a maximum of:
18%
A county or city millage rate is determined by:
Taking into account the operating budgets of the various government departments within the city or county
If a married couple who files jointly realizes a profit from the sale of their home that exceeds $500,000, what is the result?
The excess gain will be taxed at the current applicable capital gains rate
The maximum amount of profit that may be excluded from taxation on the sale of a home for a qualifying couple, filing separately is:
$250,000
Tax advantages of homeownership do not include:
A tax deduction of homeowners hazard insurance
Tax advantages of homeownership do include:
A tax deduction of property taxes paid
Penalty-free withdrawal from an IRA if used as a down payment on a personal residence for first-time homebuyers
Exclusion of gain from the sale of a principal residence up to $500,000 for married couples filing a joint return
For tax purposes, when the installment sale method is used:
Gain is reported as payments are received
What item is not a deductible expense for an income-producing property?
Reserve for replacement
What items are a deductible expense for an income-producing property?
Depreciation
Hazard insurance
Mortgage interest
A good tax-sheltering real estate investment is one in which:
The amount of depreciation taken for tax purposes is greater than the actual depreciation of the property
What is a property’s potential gross income?
The amount the property can possible earn in one year
What is a property’s effective gross income?
The amount of gross income less the vacancy rate, since properties may not be 100% occupied all of the time
What is a property’s net operating income?
The amount of income received after operating expenses (not including mortgage debt) are subtracted
How much is the Homestead Exemption for a person who is 65 years of age whose household income does not exceed $20,000?
$100,000
The purpose of the Florida Green Belt Law is:
To protect agricultural land from high taxes
What is boot?
The amount of money or personal property given with an exchanged property
Susan and John sold the home they had lived in for 18 months. They had previously sold another house in New York where they had lived for 15 years. They decided to move into an apartment and sell the house because the view is better. They are filing jointly as a married couple and they sell the property for $500,000. Will they owe any capital gain on the property?
Yes, because they have not lived in this home for two of the last five years, they do not meet the exemption requirements
Tom sold his home for $140,000 paying a 7% real estate commission. He bought the home for $45,000, paid $2,000 in closing costs, and added a new fireplace and family room for $35,000. After figuring the adjusted basis for this home, what is the amount of taxable gain?
$48,200 45,000 + 2,000 + 35,000 = 82,000 140,000 x .07 = 9,800 140,000 - 9,800 = 130,200 130,200 - 82,000 = 48,200
Paul Smith is not happy with the appraised value of his home. He appealed to the County Appraiser’s office, and was turned down. He has also been turned down by the Value Adjustment Board. What can he do next?
He can appeal to the district court in a Certiorari hearing
Mr. Smith likes to pay his taxes quarterly instead of once a year. If the assessed value on his home is $80,000 and the rate is 3.50 mills, what is his quarterly tax?
$70
3.50 * .001 = .0035
.0035 * 80,000 = 280
280 / 4 = 70
What is the difference between installment sales and like-kind exchanges?
Installment sales collect payments over a number of years; like-kind exchanges have cash as a boot
The meaning of exempt property in Florida is:
The property is taxed but the owner is exempt from paying it
What is the purpose of the “Save Our Homes” Amendment?
It provides a restricted rate increase on value of the property
Trim means:
Truth in millage
Homestead Fraud:
Can result in a 50% penalty for the amount taken
The city wants to pave the road in front of Sam Smith’s house. Sam has 110 front feet. The cost to pave is $35 a linear foot and the city will pay 25% of the paving. What is Sam’s cost?
$1,443.75
110 x 35 = 3,850
3,850 x .75 = 2,887.50
2,887.50 / 2 = 1,443.75
