By Bradley S. Tennant, CRE, Esq.

Many states have mechanisms that limit changes in assessed values for property tax purposes, which in turn limits how much owners pay in property taxes. Florida’s homestead exemption, which applies to the assessed value of your residence, limits growth of that value to 3% per year so long as the family occupies its home as its primary residence. California uses Prop 13, which limits assessed value to 1% of total market value and limits the growth of that value to only 2% per year. Both states allow this restriction to be lifted upon sale of the property, but both provide some opportunities to carry your savings forward when you move. 

There are a variety of other protocols by which assessment limitations are applied, but they all result in the same situation – property taxes that vary dramatically from house to house, despite the physical similarities of the homes, based on intangible considerations.

Not surprisingly, these limitations are highly popular among existing homeowners, particularly older generations who have owned their homes for long periods and benefit the most from such limitations. They provide predictability, affordability, and protection against rapidly rising property values. However, they can create challenges for both prospective purchasers and local governments that depend on property tax revenue.

For buyers, one of the most common frustrations is uncertainty. A property’s current tax bill often bears little resemblance to the amount that the new owner will ultimately be required to pay. Florida now requires disclosures warning purchasers that existing property taxes may not reflect future tax obligations. While that disclosure is helpful, it does little to answer the question every buyer asks: “What will my taxes actually be?” In the commercial real estate world, that uncertainty has become significant enough to support an entire industry dedicated to property tax projections.

Local governments face a different challenge. Property taxes are generally intended to reflect property values, yet assessment limitations can cause taxable values to diverge substantially from market values. Critics argue that this creates tension with principles of uniform taxation.

Consider two nearly identical homes located side by side. One carries an assessed value of $100,000; the owner has lived there for 30 years and benefited from annual assessment limits. Its neighbor, recently purchased, is assessed at $1,000,000. Although the homes are comparable, the tax burdens are dramatically different. This example is not hypothetical; differences often reach the millions in assessed value.

Many observers view this disparity as inherently unfair. From their perspectives, newer owners—who may not necessarily be new to the neighborhood—are effectively subsidizing government services for neighbors who simply remained in place. This particular issue is now subject to a referendum in Florida relative to the Governor’s plan to increase the homestead exemption for Florida owners, with a future limitation on new purchasers of property.

Unfortunately, this article does not offer a simple solution.

Governments have legitimate reasons to encourage long-term residency. Stable communities often foster stronger local economies, deeper civic engagement, and more predictable neighborhood development. At the same time, local governments must fund essential services while trying to avoid creating policies that discourage investment, mobility, or growth.

Perhaps the more fundamental question is whether property taxes are the best mechanism for balancing these competing priorities in the first place. What alternatives might better align fairness, community stability, and local government funding? More importantly, how have those alternatives performed in practice?