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What Happens To Your Homestead Tax Exemption If You Rent Part Of Your Florida Home?

By Howard C. Stross
May 22, 2023
Homestead exemption if you rent part of your home

Florida’s Constitution protects homestead property from creditors, restricts who and how one may receive the homestead at the owner’s death, exempts the homestead from some real estate tax, and caps annual tax assessment increases at three percent or the CPI whichever is less. When a property owner in good faith uses the Florida real estate property as the person’s permanent residence for themselves or their dependents, the homestead tax exemption applies to the residence and contiguous real property. The tax assessment increase cap is related to the homestead tax exemption because it applies only to homes entitled to the homestead tax exemption.


Case Study

In 1996, Mr. Rebholz applied for a homestead exemption for his two-story Florida home. Based on information in his application, the county officials considered his entire home as homestead property for tax years 2004 through 2013. Generally, Florida’s homestead laws protect only one’s primary residence; it does not apply to rental property. Mr. Rebholz rented the upper floor of his home to one tenant during all of 2004 through 2013.

In 2014, the county property appraiser learned Mr. Rebholz may not have had the right to a homestead exemption on the entire property. Under Florida law, the property appraiser must impose additional taxes that would have been due for up to the ten preceding years on individuals who have improperly received a homestead tax exemption or the cap on tax assessment increases. Ultimately, Mr. Rebholz’s homestead tax exemption was revoked on 15 percent of the structure—the space occupied by his tenant—but the remaining 85 percent was entitled to the homestead exemption. Mr. Rebholz paid $7,000 in back taxes, penalties, and interest, but sued the property appraiser, tax collector, and Florida Department of Revenue for a refund and reinstatement of the homestead exemption for the entire property. The trial court found in favor of Mr. Rebholz, and its ruling was upheld by the Second District Court of Appeal.

The case continued on appeal to The Florida Supreme Court. The Court held two components must be met to be eligible for the homestead tax exemption: ownership and residency. Here, Mr., Rebholz owned the property. The only question was the residency requirement and how it must be applied. The Florida Supreme Court concluded the lower courts had erred in determining the entire homestead real estate was Mr. Rebholz’s home for purposes of the homestead exemption. The legislature had defined “permanent residence” as “that place where a person has his or her true, fixed, and permanent home and principal establishment to which, whenever absent, he or she has the intention of returning.” Fla. Stat. § 196.012(17). However, The Florida Supreme Court noted that determinations of whether a property is a permanent residence involves a factual inquiry into the actual use of the property.

In considering the part of the home Mr. Rebholz rented to his tenant, the Court determined that Mr. Rebholz did not use it as his home, but gave exclusive use of specific space within his homestead to his tenant.
The Florida Supreme Court also determined that Fla. Stat. § 196.031(4) provided the property appraiser with the authority to apportion Mr. Rebholz’s property based on use for homestead tax purposes, because it states that the homestead exemption can apply to “the portion of property” that is classified and assessed as owner-occupied residential property.


Takeaways

Florida property owners who rent out sections of their homes should take note that doing so may reduce the benefits of the homestead tax exemption. If the homestead exemption is improperly claimed for the entire property, they may have to pay back taxes and penalties. Homeowners considering renting out space in their permanent residence under a homestead exemption should weigh the potential for increased taxes compared to the amounts that will be earned as rental payments for the rented unit.

If you have any questions regarding a homestead property or would like assistance with creating a lease agreement or other contract for your tenant, please contact the attorneys at Stross Law Firm for a 30 minute complimentary consultation.

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