This month, MSC Title is discussing the portion of the contract that addresses how real estate tax amounts are determined when a new home has recently been built. With new construction more popular than ever in our region, it is critical to understand how taxes are calculated for these properties.
Click here to read PDF Newsletter: MSC_Title-Newsletter2016-10
Tax Proration and New Construction
Section K of the FAR/BAR AS-IS-2, revised 8/13, addresses how taxes should be calculated based on new home construction:
446 year’s tax. If there are completed improvements on the Real Property by January 1st of year of
447 Closing, which improvements were not in existence on January 1st of prior year, than taxes
448 shall be prorated based upon prior year’s millage and at an equitable assessment to be agreed
449 upon between the parties, failing which, request shall be made to the County Property
450 Appraiser for an informal assessment taking into account available exemptions. A tax proration
451 based on an estimate shall, at either party’s request, be readjusted upon receipt of current year’s tax bill. This STANDARD K shall survive Closing.
This is an important section to consider when you are advising customers with regard to real estate taxes. Often folks look at the prior year’s tax bill and assume that taxes will be slightly higher than the prior year, but taxes could go up significantly depending upon when the home was constructed, when it was completed and where the property is located.
New Construction at Ashton Oaks in Sarasota.
SARASOTA COUNTY: There have been some misconceptions that the property will be reassessed based on the improved land only after a CO (Certificate of Occupancy) is obtained PRIOR to the current tax year. This is NOT the case in Sarasota County. Here, the Property Appraiser reviews the property at the end of the year to determine whether the property is “substantially complete” or in other words, is it habitable. If it is deemed “substantially complete” the Property Appraiser will assess the property based on the improvements. To determine a value, we first look to the buyer and seller to agree upon an assessed amount to use than we multiply that times the current or most recent known millage rate. If the buyer and seller do not come to an agreement as to the “assessed valuation” then we must look to the Property Appraiser (line 449 of the FAR/BAR) to ask for an informal assessment which will be used to calculate the taxes.
MANATEE COUNTY: In Manatee County, it is a different story. There is no “substantially completed” review of the property at year end (at least not as of this article). It’s pretty straight forward there that if the CO (Certificate of Occupancy) was obtained AFTER January 1 of the tax year, the assessed value will continue to be based on the unimproved land for that tax year. Most often in Manatee County, we will confirm with the property appraiser that in fact the property will be taxed at the lower “vacant land” value if the CO was obtained after January 1 of that tax year and that amount will be used for proration purposes.
CHARLOTTE COUNTY: Here, the Property Appraiser also looks to see whether the property is “substantially complete” or in other words, habitable. If it is deemed “substantially complete” the Property Appraiser will assess the property based on the improvements. To determine a value, we first look to the buyer and seller to agree upon an assessed amount to use than we multiply that times the current or most recent known millage rate.
Regardless of whether the taxes are higher or lower than expected, Line 451 of the FAR/BAR AS-IS states that the parties to the contract will readjust the taxes based upon a receipt of the current year’s taxes which will survive the closing.
For more information on Sarasota real estate and Florida real estate taxes, contact a Michael Saunders & Company agent or speak with a representative from MSC Title.
The foregoing is offered for informational purposes only and is not intended as legal opinion nor advice. You should seek your own independent legal counsel for any advice or opinion. The information herein has been provided by underwriting counsel through our underwriters.