Can a trust qualify for the Florida homestead tax exemption?
Yes, you can still get the Florida homestead tax exemption if your property is in trust, as long as you (1) have a present possessory interest in the homestead for life and (2) you would otherwise qualify if you owned the property outright.
What is the Homestead Tax Exemption in Florida?
The homestead tax exemption is a way for Floridians to reduce the property taxes on homestead real estate. Thus, this tax exemption impacts property taxes, not federal income taxes. Trusts may also have to deal with federal tax issues, but that is outside the scope of a homestead tax exemption discussion.
The homestead tax exemption in Florida can result in significant property tax savings. If your property qualifies for the exemption, you can have $50,000 of your property’s first $75,000 in value exempted from your taxes. Specifically, the first $25,000 in value is exempt from property taxes. The next $25,000 in value ($25,000-$50,000) is taxable. But the third $25,000 in value ($50,000-$75,000) is exempt. If this feels confusing, you are not alone. Many people find this breakdown to be frustrating and difficult to understand. But some examples may clarify matters.
If homestead property is worth $25,000 or less, it is fully exempt from property taxes. The taxable value of the home will be $0. Thus, a homestead worth $24,985 would not result in property taxes owed.
However, if the property is worth between $25,001 and $50,000, taxes will be assessed on the property, but you still get to subract $25,000 from the property value because the first $25,000 is exempt. Thus, a homestead worth $35,000 would pay taxes on $10,000 in property value.
Then between $50,001 and $75,000, there is another tax exemption. Thus, all homesteads worth more than $75,000 get to subtract $50,000 from the property value. And homesteads worth more than $50,000 and less than $75,000 will be taxed on $25,000 of property value. Thus, a homestead worth $100,000 would pay property taxes on $50,000 in value. And a property worth $60,000 would pay taxes on $25,000 in value. Finally, a property worth $70,000 would also pay $25,000 in value.
Can property in trust receive the homestead tax exemption in Florida?
Yes, homestead property in trust can still get the homestead tax exemption, as long as the trust is set up correctly. The key is that the trust must grant you a present possessory interest for life. This is found in section 196.041(2) of the Florida Statutes. It has also been confirmed by the Florida Attorney General on multiple occasions. [1] This has even been successfully applied to an irrevocable trust. [2]
So what is meant by a present possessory interest for life? A life estate would certainly qualify. It also includes language in the trust granting that interest. Perhaps the trust could explicitly grant the right to fully use, occupy, and possess the homestead real estate for life. However, the grant has to be for life; a term of years in not sufficient. [3]
Simply put, you can keep the exemption if your homestead is in trust. But you must be careful to set up the trust correctly. To accomplish this, it can be helpful to speak with a trust attorney who is familiar with trust drafting and knowledgeable about Florida homestead.
[1] Op. Att'y Gen. Fla. 90-70 (1990); Op. Att'y Gen. Fla. 2005-52 (2005).
[2] Robbins v. Welbaum, 664 So.2d 1 (Fla. App. 1995).
[3] Op. Att'y Gen. Fla. 94-50 (1994).