Homestead Tax Portability on 1031 exchange converted to Primary

[Matt Leber]

Hi BP community, I have a unique homestead tax question. I did a 1031 exchange a couple years ago and traded a rental duplex into a single family home that we rented out near the beach. After 2 years, my family’s circumstances changed and we decided to move into the house by the coast and make it our primary. When we moved to the new primary, we kept our old primary and converted it to a rental.

In the first couple years of owning the rental near the coast, we did not homestead it, because we had not yet made it our primary. During 2023 tax assessment the house assessment jumped up to market value, causing a large increase in property taxes in 2023 (2x). We expected this, as we were still under homestead at our old residence at the time.

After we moved into the coastal house, we filed for homestead to be ported from the old house to the new house for 2024. I was curious so I started researching how the tax savings carry over and it appears that it would result in my taxes going down significantly in 2024. My main question is, will the tax go back down if it was already increased during those first years of owning the house as a rental? Or do taxes not usually go backwards?

Here’s my calculations:

Old house market value: 331,386

Old house tax assessed value: 209,848

Old house homestead tax benefit: 121,538

2023 New house market value: 513,600

2023 New house tax assessed value: 513,600

Ported tax benefit from old house: -121,538

Homestead: -50,000

New house assessed value w homestead: 342,062

2023 tax value before homestead: 513,600

Millage rate: 12.3655

Ad valorem tax: 6,350.92

Non ad valorem tax: 838.34

Total 2023 Property tax bill: 7,189.27

(Estimated) 2024 tax value w HS (+3%): 352,323.86

Millage rate: 12.3655

Ad valorem: 4,356.66

Non ad valorem: 838.34

(Estimated) 2024 Property Tax bill: 5,195.01

Savings of about $2k after porting my homestead exemption to the new house. Is this how portability savings work? Or am I misunderstanding something here?

Thanks. Sorry for the lengthy post on a complicated property tax question.

[Michael Plaks]

@Matt Leber

You're mixing together two completely unrelated taxes: IRS income taxes and local property taxes. Your 1031 exchange has to do with the IRS taxes. Your question however is about your local property tax assessment which has absolutely nothing to do with anything IRS, including 1031 exchange.

So remove all of the irrelevant parts in your story and distill it to your question. Which is: once you apply for a homestead exemption on a property that you currently leave in, does your tax assessment go down? The answer will depend on your specific county. I don't believe you "port" anything from the old house for the local assessment though.