This is a question that was posed as part of the answer to a previous question about having your property re-assessed in a down market to save on your taxes.

How can my taxes go ^up when the market value of my home has gone _down?

In Florida we have something called Save Our Homes which is technically called Amendment 10 and was enacted in 1992.  Short history lesson here…scroll to the bottom of the indent if you want to skip it.

Let’s face it, we all know that Florida is where people come to retire (or at least that’s how it used to be).  Retirees (usually) are living on a fixed income with things like pensions and social security and as a result, if they have large fluctuations in their bils it can wreak havoc on their finances.

Well…as property values in Florida started creeping up in the 80’s and early 90’s the people of Florida were getting scared…while their mortgages might stay the same, their taxes kept going up with the property values…keep in mind, these are people with fixed incomes, and a few hundred dollars in the wrong direction at tax time can become a VERY big deal…

They were able to afford their homes…but increasingly UNable to afford the taxes!  People were selling their homes not because they wanted to…but because they had to downsize just to afford their taxes.

Enter “Save Our Homes”.  Amendment 10 did several things…for homesteaded property owners it created a $25,000 tax exemption (to try and roll things back to where people could afford their bills).  It also created a cap on the amount that your assessed value could increase if your home is homesteaded.  The cap is 3% or the Consumer Price Index (whichever is less).  i.e. if the market only went up by 2%, your taxable value went up by 2%, but if the market went up by 10%, the most your taxable value could increase would be 3%.  Side-note, this was recently increased to a $50,000 exemption via Amendment 1 in 2008.

Sounds great, right?  In an appreciating market, yes…

Skip ahead to present day when the market is dropping.  You’ve been homesteaded for several years and enjoyed the 3% cap during the boom times.  Now - if the market goes down and you are currently being taxed on less than the market value of your home, your taxes will still increase by that same 3% until your taxable value catches up to your market value (or your market value drops low enough to catch up to your taxable value).  See the following chart to help illustrate.

This chart assumes a 20% increase in market value year over year from 2001 - 2006 and then a 33% decrease in market value from 2006 - 2008 (this is actually a fairly accurate picture of the Hernando County real estate market during that time period).

As you can see, taxable values rose by 3% per year while market value skyrocketed.  Then as market value declined, taxable values continue to rise by 3% per year until the two meet, at which point it makes sense for you to contact your local property appraiser and ask to be re-assessed at the new (now lower) amount.

…and that, my friends is how your taxes can increase, even in a sharply declining market.  As always, comments, suggestions, and alternative ideas always encouraged.  What’s on your mind?