Are you subject to Ad Valorem Property Taxes?

Michael Infanti Real Estate Law

OWNERS OF PARTIALLY COMPLETED HOMES MAY BE SUBJECT TO AD VALOREM PROPERTY TAXES

Regrettably, many homeowners incorrectly believe that a partially completed home will remain classified as vacant land, and that the improvements will not be subject to ad valorem property taxes, as long as the certificate of occupancy has not been issued, and the final improvements remain under construction. In believing so, some homeowners purposely delay the final inspection for the certificate of occupancy, or the completion of certain improvements, until after January 1, with the hope of deferring the tax to the next calendar year. Unfortunately, no such bright-line test exists under Florida law.

Pursuant to Florida Statute § 192.042:

“All property shall be assessed according to its just value as follows: Real property, on January 1 of each year. Improvements or portions not substantially completed on January 1 shall have no value placed thereon. “Substantially completed” shall mean that the improvement or some self-sufficient unit within it can be used for the purpose for which it was constructed.”

The statute intends to subject real property improvements to ad valorem property taxes when the improvement is “substantially complete.” Generally, if an improvement to real property can be put to the use for which it was intended, it is deemed substantially complete for tax purposes.

When Is a Property “Substantially Complete”?

In the past, Florida courts have held, and the Attorney General has agreed, that tax appraisers may properly consider several factors in determining whether an improvement is “substantially complete” for tax purposes. These factors include:

1. Fitness for occupancy:

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For structures intended to be fully finished buildings, fitness for occupancy is an important criterion in  judging substantial completion. Whether or not a certificate of occupancy has been issued, and whether or not all required inspections have been completed, may help determine whether the improvement is substantially complete. However, substantial completion does not mean that a certificate of occupancy must be issued, or that every last detail of construction or ornamentation must be finalized. Instead, a structure may be deemed substantially complete even where the certificate of occupancy has not yet been issued, or where certain finishing touches remain under construction.

2. Whether individual self-sufficient units of the improvement are substantially complete, even when the entire complex is not complete:

The test for substantial completion is not always whether the entire complex is substantially complete. Instead, if certain self-sufficient units within the complex are substantially complete, those self-sufficient units will be assessed a taxable value. Courts have held that self-sufficient units could include individual condominium units, lobby areas, parking areas, dock and pier areas, roof structures, pools, elevators, and systems for plumbing and air conditioning. If these self-sufficient units are substantially complete, and may be used for the purpose for which they were constructed, then they may be assessed a taxable value regardless of whether the entire construction project remains incomplete.

3. Marketability:

This factor considers whether a structure is completed to the extent that it could be marketed for apresent or future financial gain. For shell buildings, this inquiry depends on whether the individual units within the shell may be sold to a buyer who could subsequently complete and occupy the unit.

4. Impediments to substantial completion within the taxpayer’s control:

Although Florida courts have not yet interpreted this factor, the Florida Attorney General has stated that an owner/developer cannot purposefully cause a delay in construction in order to avoid an assessment and taxes. On the other hand, if an improvement is not substantially complete for the purpose for which it was constructed by January 1 due to delays which are not within the control of the owner/developer (e.g., natural disasters, poor weather conditions which delay construction and contractor delays, etc.), then the improvement would arguably not be subject to an assessment and taxes.

To summarize, improvements to real property may be subject to ad valorem property taxes when the improvements are “substantially complete.” Generally, if an improvement can be put to the use for which it was intended, it is deemed substantially complete for tax purposes. In order to determine if the improvement is substantially complete, the tax appraiser may consider a host of factors, as well as perform on-site inspections and examinations of building department records. Ad valorem tax assessments may be challenged before the Value Adjustment Board and in the court system. Settlements with the property appraiser’s office may also be negotiated. There are strict time deadlines for challenging the property appraiser’s assessment.

About the Author

Michael Infanti