Did You Overpay Your Real Estate Taxes?
If you purchased Florida real estate between 2004 & 2006, you may be entitled to a tax refund from the seller.
Florida home and property buyers may be entitled to more than $171,000,000 in real estate taxes for properties purchased in 2004, 2005, and 2006. This newly discovered tax anomaly may affect about 670,000 purchasers, perhaps more because this estimation does not include the purchase of new construction or residential vacant lots. In addition to single family homes purchased, both new construction and residential lots can be affected. If you purchased real estate in another state besides Florida, which also pays real estate taxes “in arrearsâ€, you may also currently be due a tax refund from the seller. Some states that pay taxes “in arrears’ are: Alabama, Arizona, Idaho, Illinois, North Carolina, North Dakota, Ohio, and Texas.
How and why did this happen?
The answer to these questions will follow, but first one must have some background information.
Real estate taxes are computed by two components - assessed value for ad valorem taxes and the millage rate or more commonly called tax rate. Florida real estate taxes are paid “in arrears.†Each year the county property appraisers’ offices reassess property values as of January 1st, based upon the previous calendar year’s prices paid for the various classifications of real property. The new assessed values generally are not finalized until July 1st. The tax rate is not finalized, until the budgetary process is finalized, which could be from the later part of September into the early of October. Non-ad valorem items such as, solid waste removal or community development districts are not affected.
According to statistics from the Florida Association of Realtors approximately 670,000 single family homes were sold over the period 2004 to 2006 (new construction is not included). During the same years the median price of a single family rose from $155,800 to $235,100. Specifically, by year the median price of a single family rose; 2003 – 12%, 2004 – 17%, and 2005 – 29%. The impact of the rise of median prices takes place in the next calendar year, during the reassessment of property values by the county property appraisers’ offices. For example, if you purchased an existing home in 2006, the assessed value could have increased 29% for real estate tax purposes.
At the time of closing, the finalized assessed value or the millage rate may have not been officially determined; therefore the real estate proration is calculated based upon the best
available information – the previous year’s annual ad valorem real estate tax bill. In essence, the real estate tax proration is correct for the day of closing. The under-proration occurs after the official property assessments and tax rate have been adopted.
Are you affected?
Most likely, you are affected if you closed on a property earlier than September 30th in 2004, 2005, or 2006. In the case of new construction, a certificate of occupancy (CO) needed to be issued prior to January 1st of the year of purchase. If the CO, was issued after January 1st in the year purchased, then only the land will be affected and not the structure.
In most real estate contracts, there is a clause or standard for real estate transactions which addresses the proration of real estate taxes. The clause should have some wording to the affect that the real estate taxes shall be re-prorated based upon the actual ad valorem real estate tax bill at the request of either the buyer or seller. Most Florida real estate contracts places the responsibility of the final tax determination accuracy on the shoulders of the buyer and seller, not the closing agent or real estate agent.
What should you do to determine if you think you might be affected?
1. Using the actual real estate tax bill – re-prorate it for the day of closing only for the ad valorem taxes.
2. Compare the amount obtained in step #1 to the amount generally shown on line 210 or 211 of the Settlement Statement.
3. Check your purchase contract for the proration clause and its wording.
4. Review your closing documents to determine if any document was signed explaining how an incorrect proration is handled.
5. Contact the seller if you are owed a sum you feel that might be worthwhile.
Based upon statistical information from the Florida Association of Realtors and Florida Department of Revenue’s report entitled “Florida’s Property Tax Structure: An Analysis of Save Our Homes and Truth in Millage Pursuant to Chapter 2006-311, L.O.F.†An estimation was determined based upon year of purchase, median price paid, and if the home was a homestead or non-homestead property what a buyer might be owed, if the closing occurred on or before June 30th.Â
|
Year Purchased |
Median Price Paid Prior Year | Homestead Property | Non-Homestead |
| 2004 | $155,800 | $ 39 | $106 |
| 2005 | $182,400 | $136 | $316 |
| 2006 | $235,100 | $103 | $386 |
Your own situation may vary significantly depending upon your purchase price – the greater the price the more you might be due. In addition, new construction and vacant residential lots are not considered in the above table.Â
Buyers of Naples Florida real estate in 2005 have realized between $400 and $900 from the builder of new construction homes and condos, which was on only vacant land!
If you need help in determining what might be owed to you, consult with your closing agent, real estate agent, accountant, or attorney.
Comments
3 Responses to “Did You Overpay Your Real Estate Taxes?”
Got something to say?
[...] can find the article “Did You Overpay Your Real Estate Taxesâ€Â which discusses the background and steps needed to identify the amounts that could be owed to [...]
I bet tax attorneys are being bombarded with inquiries, especially from large investors.
This is crazy. MD went up too. A $200,000 house today went for $130,000 4 years ago.