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Property tax cap results in huge shift in burden

Published March 27, 2005

You know the definition of a fair tax, don't you? It's a tax somebody else pays. While that's often said in jest, it's the way many of us think.

It gave us the "Save Our Homes" amendment to the Florida Constitution, which took effect a decade ago. The amendment capped the annual increase in the assessed value of homestead property to 3 percent or the rate of inflation, whichever is less. The cap comes off when the property is sold.

The concept sounds innocent enough, but the result has been a huge shift in the tax burden. Recent home buyers often pay double the property taxes of neighbors who live in similar homes.

The St. Petersburg house my husband and I sold in 2001 is a good example. If we still lived there, we'd still be paying a little more than $2,000 a year in property taxes. The current owners got a $5,226 tax bill last year. They are teachers who live out of state and bought the house as a future retirement home, so they pay full freight. Is that fair?

And, of course, our tax bill just about doubled when we moved even though the property appraiser assigns nearly identical "just" values to our old house and our new one. Although we're lifelong Floridians, we lost the "Save Our Homes" protection by moving across town. Now our cap is based on the new, higher value. Is that fair?

The Florida Senate is considering a proposal to allow people who move within the state to take their "Save Our Homes" protection with them, based on the value of their old homes. Guess who would be helped the most if it passes? The same people who benefit the most from "Save Our Homes." In Pinellas County, owners of homes valued at more than $1-million saved an average of $10,767 on their 2004 taxes as a result of "Save Our Homes." Should they really be able to keep that kind of tax advantage when they move? Would that be fair?

Tax rates could be lower if all of us paid taxes on the full fair value of our property. But since two-thirds of us don't, we put a double burden on those who do. That's not just people who move and owners of second homes, but also first-time home buyers. In addition to skyrocketing real estate prices, they face higher property taxes. Is that fair?

"Save Our Homes" is probably here to stay, but its lessons shouldn't be lost on us as we move on to other tax reforms. As you read each proposal for changing the federal income tax or Social Security, don't just look at what it would do to your tax bill. Consider who would pay more if you paid less. And ask yourself if it's truly fair.

Do you have any bits of wisdom concerning repayment of a heavy college debt load that will fall on the shoulders of a new college graduate come May?

Don't sign an apartment lease or buy a car until you've figured out a budget that includes a plan for debt repayment. Repayment of any large debt starts with figuring out how to come up with the money. In most cases that means developing a spending plan that covers the necessities of life and includes an allowance for discretionary spending.

Once you have an idea of how much (a minimum and a maximum) you can afford to put toward debt repayment each month, review the repayment options available to you, including loan consolidation, which locks in your interest rate. Rates are likely to go up July 1, so don't wait too long. Be sure to ask about incentives such as reduced rates for automatic electronic payments and on-time payments.

Once you've set up your repayment plan, keep your payments current and notify your lender if you move. If you run into difficulty making payments, contact your lender rather than letting the loan go into default.

I have some stocks that have appreciated, but I don't know when to sell them. What are some theories on when you should sell stock?

I recommend asking yourself a series of questions: If I didn't already own this stock, would I buy it today? Do I think this stock has good appreciation potential for the future? Do I have a better use for the money? If you don't come to a clear conclusion, consider selling half your holdings. Another option is to sell enough shares to recover your original investment and let the rest ride.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified September 2, 2005, 15:53:22]

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