The impact of co-ownership on Florida homestead.

• Author: Percopo, Joseph M.
• Position: REAL PROPERTY, PROBATE AND TRUST LAW

As the Florida Supreme Court noted in Snyder v. Davis, 699 So. 2d 999, 1001-02 (Fla. 1997), there are three kinds of homestead, all with one purpose: preserving the family home for its owner and heirs. The first kind provides homestead with an exemption from taxes. (1) The second protects homestead from forced sale by creditors. (2) The third delineates the restrictions a homestead owner faces when attempting to alienate or devise homestead property. (3)

Home ownership is not limited to a single person or family. Instead, homes may be owned in a variety of different forms, and in a down economy in which banks have stricter lending policies, co-ownership of property becomes even more common. Consequently, how does co-ownership of property impact the three kinds of homestead? This article examines the effects of owning property as tenants by the entirety, tenants in common, joint tenants with right of survivorship, and with life estates.

Tax Exemptions

Individuals who qualify for homestead can enjoy certain tax benefits. These benefits include a reduction in the assessed value of the homestead and a limit on the increase in property value of the homestead for ad valorem tax purposes. This article now examines how co-ownership of property affects these homestead tax exemptions.

* $25,000 Tax Exemption--Fla. Const. art. VII, [section] 6 states that "[e]very person who has the legal or equitable title to real estate and maintains thereon the permanent residence of the owner, or another legally or naturally dependent upon the owner, shall be exempt from taxation thereon ... up to the assessed valuation of twenty-five thousand dollars ...." Therefore, to qualify for this homestead tax exemption, the property owner "must be a permanent resident of Florida, must own and occupy the property as his or her permanent residence, and must hold legal or equitable title to the property."4 F.S. [section] 196.031 explains how the $25,000 exemption applies to co-owners, stating that the exemption "may be apportioned among such of the owners as shall reside thereon, as their respective interest shall appear."

With regard to property titled as tenants by the entirety or as joint tenants with right of survivorship, when at least one of the co-owners qualifies for the homestead tax exemption, he or she is permitted the entire exemption amount. (5) Therefore, as an example, if Abby, Ben, and Chuck own whiteacre with an assessed value of $60,000 as joint tenants with right of survivorship, and Chuck qualifies for the homestead tax exemption, Chuck then can use the entire $25,000 exemption. After which, Abby, Ben, and Chuck would only be responsible for the ad valorem taxes assessed on whiteacre at a value of $35,000. (6) Chuck is not relieved from paying taxes even though he was the individual who qualified for the exemption; all three are responsible for the taxes. (7) However, the property owners are free to agree among themselves who should pay what portion of the taxes due.

When property is titled as tenants in common between co-owners, the application of the $25,000 exemption gets slightly more complicated. "[T]he amount of the exemption may not exceed the proportionate assessed valuation of all owners who reside on the property" when the property is not held as tenants by the entirety or as joint tenants with right of survivorship. (8) Therefore, if at least one co-owner of the property titled as tenants in common qualifies for the homestead tax exemption, he or she "may ... claim as exempt [no] more than his [or her] interest in the property up to a total of $25,000." (9) To illustrate this scenario, assume that Abby, Ben, and Chuck own blackacre as tenants in common, each with a one-third interest:

1) Blackacre has an assessed value of $90,000, and Chuck is the only co-owner who qualifies for the homestead tax exemption. Chuck's proportionate interest in blackacre is $30,000 ($90,000 X 1/3). Chuck can claim the entire $25,000 exemption because it does not exceed the value of his proportionate interest. After which, Abby, Ben, and Chuck will be responsible for the ad valorem taxes assessed on blackacre at a value of $65,000.

2) Blackacre has an assessed value of $60,000, and Chuck is the only co-owner who qualifies for the homestead tax exemption. Chuck's proportionate interest in blackacre is $20,000 ($60,000 X 1/3). Chuck can only claim $20,000 of the $25,000 exemption because he cannot exceed the value of his proportionate interest. After which, Abby, Ben, and Chuck will be responsible for the ad valorem taxes assessed on blackacre at a value of $40,000.

It is important to understand that one co-owner qualifying for the homestead tax exemption can use the entire $25,000 exemption, but only if he or she possesses an interest that carries at least that value. Therefore, if mom and dad want to buy a home--which son plans to make his homestead--with son as tenants in common, they must be sure to give him a high enough percentage of ownership in order to take advantage of the entire exemption (or title the property as joint tenants with right of survivorship).

As for life estates and remainder interests, F.S. [section] 196.041 states that a life estate is considered "equitable title to real estate" and may, therefore, qualify for the homestead tax exemptions. (10) Section 196.031(1)(a) divides the application of the $25,000 exemption of co-owned property into two categories: 1) property that is owned as tenants by the entirety or joint tenants with right of survivorship, and 2) all other types of co-owned property. Therefore, life estates and remainder interests fall into the same category as tenants in common property. However, a co-owner holding a life estate has a present possessory interest in the property, and the co-owner with the remainder interest has a future interest with no present right to possess the property. Thus, the life estate holder has 100 percent of the current possessory interest permitting the life estate holder to use the entire exemption amount (provided, of course, it does not exceed the value of the property). (11) The co-owner with the remainder interest would not be able to qualify for any homestead tax exemptions. (12)

* Save Our Homes Tax Cap--In 1992, Florida adopted a state constitution provision known as the Save Our Homes (SOH) tax cap, which limits the annual increases to homestead property for ad valorem tax purposes. (13) Fla. Const. art. VII, [section] 4(d) provides:

(d) All persons entitled to a homestead exemption under Section 6 of this Article shall have their homestead assessed at just value as of January 1 of the year following the effective date of this amendment. This assessment shall change only as provided in this subsection.

(1) Assessments subject to this subsection shall be changed annually on January 1st of each year; but those changes in assessments shall not exceed the lower of the following:

1. Three percent (3%) of the assessment for the prior year.

2. The percent change in the Consumer Price Index for all urban consumers, U.S. City Average, all items 1967 = 100, or successor reports for the preceding calendar year as initially reported by the United States Department of Labor, Bureau of Labor Statistics.

Therefore, when a property owner qualifies for the homestead tax exemption under [section] 6, (14) the most his or her property value can increase for ad valorem tax purposes is three percent a year. However, anytime there is a "change of ownership," (15) the property must be assessed at just value the following January. (16) In addressing the application of the SOH tax cap to co-owned property, F.S. [section] 193.155(7) states that "[i]f a person received a homestead exemption limited to that person's proportionate interest in real property, the provisions of this section apply only to that interest." Thus, the application of the SOH tax cap to coowned property differs from that of the $25,000 tax exemption under [section] 6.

F.S. [section] 196.031 specifically permits co-owners of property held as tenants by the entirety or as joint tenants with right of survivorship to use the entire $25,000 tax exemption and does not limit to an owner's proportionate interest. Thus, when at least one of the co-owners of tenants by the entirety property or right of survivorship property qualifies for the homestead tax exemption, the entire property (100 percent of the value of the property) is subject to the SOH tax cap. For example, Abby, Ben, and Chuck own whiteacre as joint tenants with right of survivorship. Chuck qualified for the homestead tax exemption in the preceding year, and whiteacre had an assessed value of $90,000. This year, whiteacre's value has doubled (100 percent value increase); however, because Chuck qualified for homestead and still qualifies for homestead, the assessed value for ad valorem tax purposes cannot exceed a three percent increase. Therefore, even though whiteacre is now worth $180,000, Abby, Ben, and Chuck would only be responsible for taxes on $92,700. (17) When home values are skyrocketing, the SOH tax cap can save a significant amount of money on taxes.

When property is titled as tenants in common, the application of the SOH tax cap depends on which co-owners qualify for the homestead tax exemption and what percentage of ownership the qualifying co-owners possess. F.S. [section] 196.031 limits the application of the $25,000 tax exemption to a co-owner's proportionate interest, (18) therefore, only the percentage of the co-owned property that qualifies for the homestead tax exemption will be...