Death and Taxes

One of the nastiest surprises that families involved with a Florida probate often face is the HUGE increase in property taxes on the homestead after the final owner dies. There is no change when a husband or wife passes away, provided there is a surviving spouse. However, when the survivor dies, and the homestead property passes to the heirs, two changes combine to put a huge bite on the wallet in the next year’s property tax.

First, there is always the loss of the “Save Our Homes” cap on the annual increase of the “taxable value” of the homestead. Death with no surviving spouse is treated like a sale, which means “the cap is off” and the home gets taxed at full market value. If the former owner lived for many years in his or her home, the gap between taxable value and market value can be severe.

Second, unless the heirs make the homestead their principal residence by January 1 of the next year, the homestead tax exemption (up to $50,000) is lost. Often the heirs already own their own home, and they can’t have two principal residences, so the parent’s house loses the exemption.

The two tax increases together can be brutal. It’s not unusual to see Dad’s property tax bill of $500 on a modest home go to $4,000 after he dies. On a higher scale, if Mom lived in her waterfront property for 50 years, the loss of the Save Our Homes cap can result in property taxes of tens of thousands of dollars, compared to a few thousand she paid.

In a soft real estate market, where selling a homestead can take time, there is little that a family can do other than to take steps to get ready to pay the tax man a lot more money.