Downsizing in Central Florida usually means selling a larger home, buying a smaller one, and keeping as much of your equity and tax savings as you can along the way. The two biggest money questions are whether you can carry your Save Our Homes property tax savings to the new home, and whether you will owe federal tax on the gain from the sale. This guide covers both, plus timing and planning.
Will my property taxes go up if I downsize in Florida?
They can. If your current home has a homestead exemption, the Save Our Homes cap has limited how much its assessed value could rise each year. Under that cap, the assessed value of a homestead “will not increase more than 3%, or the percentage change in the Consumer Price Index, whichever is less,” according to the Hillsborough County Property Appraiser. After years of rising values, many long-time owners have an assessed value well below market value.
That cap does not travel with the house. When ownership changes, the limitation expires and the home is reassessed at full market value on the following January 1. So a buyer of a smaller home could face a higher tax bill than expected, even on a lower purchase price, unless they use portability.
What is homestead portability and how does it work?
Portability lets you move some or all of your Save Our Homes benefit, the gap between your old home’s market value and its capped assessed value, to a new Florida homestead. The Seminole County Property Appraiser explains that up to $500,000 of that benefit can transfer to a new qualifying homestead.
Portability is not automatic. You file Form DR-501T, Transfer of Homestead Assessment Difference, with the property appraiser in the county where the new home is located, in addition to the regular homestead exemption application. The Florida Department of Revenue says the homestead application, Form DR-501, is due by March 1 of the tax year.
How much of my tax savings carries over if I buy a smaller home?
When the new home has a lower market value than the old one, the benefit is scaled down in proportion. The Seminole County Property Appraiser describes it in three steps:
- Divide the old home’s Save Our Homes benefit by its market value to get a percentage.
- Multiply the new home’s market value by that percentage. That is the portable amount.
- Subtract the portable amount from the new home’s market value to get its assessed value.
The property appraiser’s own example uses an old home worth $400,000 with a $100,000 benefit, which works out to 25%. If the new home’s market value is $250,000, the portable amount is $62,500, and the new assessed value starts at $187,500. Exemptions are then applied to that assessed value. Your county property appraiser can run the figures for your own homes.
How long do I have to buy the new home?
You must establish the new homestead within three years of January 1 of the year you gave up the old one. That is not the same as three years from the sale date. The Seminole County Property Appraiser’s example: a home sold in February 2024 means the new homestead must qualify by December 31, 2026. If you plan to rent for a while before buying, mark that date early.
Will I owe capital gains tax when I sell the bigger home?
Many sellers of a main home owe no federal tax on the gain, but not all. The IRS says single filers can exclude up to $250,000 of gain on the sale of a main home, and married couples filing jointly can exclude up to $500,000. To qualify, you generally must have owned the home and lived in it as your main home for at least 24 months within the five years before the sale. For joint filers, both spouses must meet the use test.
Owners who bought decades ago, or who made large gains, can go over those limits. Because the details depend on your situation, talk to a CPA before you list. This guide is general information, not tax or legal advice.
Should I sell first or buy first when downsizing?
There is no single right order. Each path trades one risk for another:
- Selling first gives you a known amount of cash and a firm budget. The trade-off is that you may need a short-term rental or a delayed closing while you shop.
- Buying first lets you move once and take your time getting the old house ready. The trade-off is carrying two homes for a period, and some lenders treat the old mortgage as part of your debt when you apply.
- A coordinated closing, where both sales close within days of each other, can work when both sides of the deal are ready. It needs a buffer in case one closing slips.
Whichever you choose, keep the three-year portability window and the March 1 homestead filing deadline in your plan.
What should I check before buying the smaller home?
- HOA or condo rules and fees. Many smaller homes in Central Florida sit in associations. Read the budget, rules, and any planned special assessments before you commit.
- Insurance. Get a homeowners insurance quote early. The roof age, wind mitigation features, and location can change the premium a great deal.
- Single-story layout and access. Look at steps at the entry, doorway widths, and the main bathroom if you plan to stay for many years.
- Flood zone. Check the flood zone map and ask whether flood insurance is required by your lender.
- Projected tax bill. Ask the property appraiser to estimate the new home’s taxes with portability applied, rather than relying on the seller’s current bill.
How do I get my larger home ready to sell?
Start the sorting early. Downsizing often means deciding what to keep, sell, donate, or pass along to family, and that takes longer than most people expect. Then fix what an inspector is likely to flag: roof, plumbing, electrical, and air conditioning. Older Florida homes often need a four-point and wind mitigation inspection for the buyer’s insurance, so knowing their condition before you list can prevent surprises during the contract.
Frequently asked questions
Can I transfer my Save Our Homes benefit to a home in another state?
No. Portability applies only when you move from one Florida homestead to another Florida homestead.
What is the most Save Our Homes benefit I can transfer?
Up to $500,000, according to the Seminole County Property Appraiser. When the new home is worth less than the old one, the amount is reduced in proportion.
Is portability applied automatically when I buy a new home?
No. You must file Form DR-501T with the property appraiser in the county of the new home, along with the homestead exemption application.
When is the homestead exemption application due?
The Florida Department of Revenue says Form DR-501 is due to your county property appraiser by March 1 of the tax year.
How much gain can I exclude when I sell my main home?
The IRS allows up to $250,000 for single filers and up to $500,000 for married couples filing jointly, if you meet the ownership and use tests. Ask a CPA how the rules apply to you.
If you are thinking about downsizing in Central Florida, Sloan Properties, Inc. can help you plan the timing of both moves and price your current home. Licensed 26 years, we work with homeowners across Orange, Seminole, Osceola, Lake, Polk and nearby counties. Start with a free home valuation or call (407) 961-7720.
