Most homeowners in Florida know that a Florida property with a homestead exemption attached to it has a variety of benefits which includes the 3% per annum Save Our Homes (‘SOH’) tax increase cap. This cap helps keep homeowners’ taxes low in times of price increases and Florida residents are generally aware that they must proceed cautiously before transferring homestead properties to LLCs, trusts, or other entities so as to preserve that cap.
However, the 3% annual cap for homestead property is not the ONLY Florida ad valorem tax cap for real property. There is also a 10% per annum increase cap on non-homestead residential properties (such as vacation homes, secondary residences, rental properties, commercial properties or vacant land).
A very recent Florida 3rd DCA court opinion (“S and A Property Investment Services, LLC v Pedro Garcia et al”) highlights a new risk associated with transferring clients’ Florida non-homestead properties to LLCs – the potential loss of the built-up non-homestead, 10% ad valorem residential property tax cap benefit.
In June of 2019, in what might be considered an industry-standard asset protection plan, the Plaintiffs in the case deeded their property to the LLC, to insulate themselves from any personal liability from owning the property personally/directly. In the year after the deed to the LLC, the Property Appraiser removed the 10% property tax cap limitation the Plaintiffs had enjoyed, and increased the taxes for the LLC. Per the decision, the Property Appraiser’s assessed value of the Property rose from $104,023 (with a 10% per annum cap on increases) to $273,409 in 2020, causing a 160%+ increase in property taxes for the same Property in 2020. The court found the deed transferring ownership to the LLC (even though owned 100% by the Andersons) was a change of ownership. The court found that the LLC is a legal entity and it is separate and distinct from the individual owners prior to the deed to the LLC.
This case is significant because previously, the property appraiser had treated a property moved from an owner to that owner’s LLC as a transfer that was not a change in entity ownership, since the owner(s) of the LLC were the owner(s) of the property before the transfer. Thus, the transfer did not trigger a re-assessment. This new court decision from the 3rd DCA flips that narrative on its head. Now owners risk severe tax increases if they transfer appreciated property into an LLC.
In summary, with property values having risen astronomically in the past decade here in Florida, property owners should get professional legal advice on from an Estate Planning attorney, and potentially consult their tax professional as well, before transferring ownership of their properties into LLCs. Not doing so might lead to unintended and quite costly tax consequences. If you need legal advice on this or any other estate planning matter we would be happy to set you up with a free consultation with attorney Brett Halperin who manages our Estate/Wills/Probate/Trusts practice area.