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People in Florida approved a measure last year that increased homestead exemption from $25K to $50K. This sounded like a great opportunity to decrease property taxes. And it is. But not for everybody. As it turns out if you have lived in your property for at least three years or more chances are that the extra $25K in homestead exemption will not make a difference and in fact your overall tax bill my go up. It did with me.

Before analyzing how this phenomena happened, it is important to understand how property taxes are calculated. The counties determine your taxes by first determining what the assessed value of your property is. When you first buy your property this value is typically 85% of the purchase price. As you live in your property for years, this value cannot go up by more than 3%/yr by law. The market value on the other hand is supposed to represent what your home is worth on the market. However, once you have lived in your property for 2 years or more this value is outdated. This value is usually below the real market value but in reality it is not a factor used to calculate your taxes. Once the assessed value is determined the homestead exemption(if you qualify) of $50K is subtracted from this value and the new value is used as the base for your taxes. This new value is multiplied by the millage rate to calculate your total tax bill. Millage rate is the tax rate pre-determined by your property appraiser for each of the departments that will receive a slice of the pie. One mil equals $1 for every $1,000 of taxable property value. If your millage rate is 20.49, then you are paying $20.49 in taxes for every $1,000 of taxable property value. Let's say your assessed value is $200K. When we subtract the $50K homestead exemption it yields an assessed value of $150K. If your millage rate is 20.49 your taxes will be $3073.50 for that year. The millage rate varies from county to county but it is specified on your tax bill or you can find it in your property appraiser's website.

I live in Palm Beach County. Upon careful examination of my latest tax bill it is worth to point out the following observations:

• Exemption of School Budget – the public schools budget was exempt from the second $25K. This means that the public schools obtained their budget before they subtracted the extra $25K. In my case the school budget actually increased.
• Home Assessed Value – although the market value of my property decreased $41K from last year, the assessed value – the value used to calculate your property taxes – actually increased by almost $6K(3%), the maximum allowed by law on a homestead property.
• Solid Waste Authority Increase – the solid waste authority rate increased by over $100. This arbitrary increase is a direct increase on the tax bill(non ad valorem)and totally unaffected by the $25K increase in exemption.
• Millage Rate Increase – this is possibly the biggest contributor to the tax increase. The millage rate in my case increased by .1746 as compared to 2007. This is a clever way to increase property taxes in stealth mode.

These four factors offset the extra $600 or so in savings that I would have achieved with the extra $25K in homestead exemption. As mentioned at the beginning there are some people that did benefit from this homestead exemption increase but chances are that if you have lived in your property for several years you saw little or no savings from this extra $25K homestead exemption, and in fact your tax bill may have gone up.