As most Florida homeowners know, the Homestead Tax Exemption is a valuable savings tool. The Exemption allows for a $50,000 reduction of a property’s assessed value, and includes the "Save Our Homes" cap that limits annual increases in assessed value of real property to 3%.
With Florida’s rising cost of living, many homeowners are attempting to generate additional cashflows by renting out their home, but do not realize the strict requirements to maintain the Homestead Exemption. For example, real property is eligible for Homestead Exemption only if it is a permanent residence. Florida law states this must be a person’s permanent home, and when the person is absent, he or she intends on returning to the permanent residence. A person can only have one permanent residence and it is presumed to continue until it is demonstrated a change has occurred.
Homeowners can rent homestead property, but may abandon the Homestead Exemption if the property is entirely rented or “substantially” rented for more than 30 days per calendar year, for two consecutive years. And therein lies a problem. Many homeowners fail to realize that renting the entire permanent residence on a short-term basis, and/or only renting out a portion of the property, may constitute a change resulting in the removal of the Exemption or its modification resulting in a higher property value tax assessment.
This does not mean if you only rent out a room you will lose the Exemption. Each county property appraiser has its own different policies and procedures for short-term and long-term rentals of homesteaded real property.
Homeowners have three options:
- Do nothing (not recommended!)
- Remove the homestead exemption (not recommended!)
- Familiarize yourself with the rules and regulations of short and long term homestead rentals by contacting your local county property appraiser’s office and other related tax agencies (best option!)
All three options have serious consequences, because if it is determined that a property was not entitled to a homestead exemption, but was granted a homestead exemption, it shall be the duty of the local property appraiser to collect previously exempted taxes against the property, plus a penalty of 50% of the unpaid taxes for each year and 15% interest per annum.
Before you decide to rent out your homestead property, we strongly suggest you contact your local real estate attorney, insurance agent and accountant to discuss your options and their potential ramifications.
Case Studies
No Full Homestead Exemption for Partial Rentals
https://www.floridarealtors.org/news-media/news-articles/2023/04/no-full-homestead-exemption-partial-rentals
In April of this year, the Florida Supreme Court ruled that anyone who rents out part of their home could not claim full homestead tax exemption. Rejecting lower-court decisions, the Florida Supreme Court ruled a Sarasota man should not have received a homestead property-tax exemption for part of his house that he rented out. Furst determined that 15% of the property was not entitled to a homestead exemption because it was being rented to a tenant. That resulted in Rebholz facing $7,000 in back taxes, penalties and interest for the tax years 2004 through 2013.
Renting a Room Can Hurt Homestead Tax Exemptions
https://www.floridarealtors.org/news-media/news-articles/2023/01/renting-room-can-hurt-homestead-tax-exemptions
When Dan Graue read a letter from the Sarasota County Property Appraiser that notified him he had been dodging taxes on his homesteaded property and now owed more than $64,000 in fines and back taxes, he thought there must have been an error. He and his wife, Jennifer, had owned the house off Bahia Vista Avenue since 1995, after purchasing the home from Jennifer’s family, which had owned the property since the 1950s.
Source: https://berlinpatten.com/renting-away-the-florida-homestead-exemption/