Did anyone notice there is a new marital asset? This new asset is easy to overlook because nearly half of Florida homes are sunk in negative equity. (1) When the real estate market recovers, family lawyers may discover there is a brand new asset to distribute: the homestead tax assessment limitation, which is now portable.
One of the largest exemptions Florida homeowners are entitled to is the homestead exemption, which can now shield up to $75,000 of the value of a home before its taxable value is determined. (2) The homestead exemption is found in Fla. Const. art. VII and provides a tax exemption up to the assessed valuation of $25,000 and, for all levies other than school district levies, on the assessed valuation greater than $50,000 and up to $75,000, in certain circumstances. (3)
The "Save Our Homes" Amendment (SOHA) is found in Fla. Const. art. VII, [section]4(d)(1), and SOHA essentially caps any increases in your home's assessment to the lower of three percent of the assessment for the prior year, or the percent change in the Consumer Price Index. Last year, SOHA protected roughly $180 billion in assessed value from taxation. (4)
Prior to 2008, the SOHA assessment limitation ended when ownership of the homestead changed. (5) In 2008, voters approved Amendment 1 to the constitution, which allows homeowners to keep a portion of their SOHA differential after their home is sold, and transfer that portion to a new homestead. Fla. Const. art. VII, [section]4(d)(8) provides, in pertinent part:
A person who establishes a new homestead as of January 1, 2009, or January 1 of any subsequent year and who has received a homestead exemption pursuant to Section 6 of this Article as of January 1 of either of the two years immediately preceding the establishment of the new homestead is entitled to have the new homestead assessed at less than just value. If this revision is approved in January 2008, a person who establishes a new homestead as of January 1, 2008, is entitled to have the new homestead assessed at less than just value only if that person received a homestead exemption on January 1, 2007.
The constitutional provision, which is implemented in F.S. [section]193.155, is most noticeable when the real estate market crests, as it keeps property taxes down while market values go up. The inverse is true when real estate prices hit bottom. Today, we are experiencing SOHA's recapture rule, in which taxable values rise while market values sink. Since Amendment 1 passed, its family law implications have lain hidden under a sea of stagnated property values and weak sales. (6)
SOHA Portability: Tax Consequence or Marital Asset?
The new ability to transfer the SOHA differential creates a classification problem in family law: Is it a tax consequence of the sale of the home, or is it a marital asset which is now distributable? The distinction between a tax consequence and asset is important because a court only has to consider the tax consequences of a distribution, but must actually distribute the marital assets.
On the one hand, SOHA portability could be construed as a tax consequence imbedded in, and unlocked by, the sale of the marital home. In the event of a sale of the marital home, both spouses take their SOHA differential to new homes, and classifying the benefit as a tax consequence makes sense.
In Florida, the tax consequences in every distribution must be taken into consideration to achieve a fair and equitable result. (7) The reasoning is simple: Consideration of the tax impact of an equitable distribution plan prevents a party from gaining an unfair advantage or suffering an unfair burden. (8) Additionally, valuing a property without considering its tax consequences does not accurately reflect its fair market value. (9)
In Sweeney v. Sweeney, 583 So. 2d 398 (Fla. 1st DCA 1991), the First District directed a trial court on remand "to consider whether there will be tax consequences for either party as a result of filing an individual return, which should be taken into consideration when reevaluating the entire equitable distribution." (10) In Nicewonder v. Nicewonder, 602 So. 2d 1354 (Fla. 1st DCA 1992), the court elaborated that a trial court is required to consider the consequences that affect the value of the properties being distributed, including contingent tax liabilities...