With Jeff Baskies, Attorney, named by Worth magazine as one of the “Top 100 Attorneys”
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Steve spoke with Jeff Baskies, a well-respected attorney from Boca Raton, spoke with Steve about the homestead exemption in Florida. A graduate of Trinity College and Harvard Law, Jeff focuses his practice mainly on estate planning for wealthy families. He also contributes regularly to the Steve Leimberg Asset Protection Planning Newsletter.
In Florida, if you own a home, you are entitled to homestead exemption, a benefit for ad valorem tax purposes. This reduces the value by about $50,000. There’s also a yearly three percent increase cap, which means that your property taxes can’t increase more than three percent each year. For people who’ve had their homes a long time, during which their property may have substantially increased in value, the homestead exemption can be a huge money saver.
Another great thing about the homestead exemption is that it also offers protection from creditors. If you live on less than half of an acre of land, within a city’s limits, the property is completely exempt from creditors, no matter what the value.
The Case Of Scottie Pippen
A much-highlighted case involved Scottie Pippen (former NBA All-Star) and the homestead exemption. Scottie was looking to sell his property for about $16,000,000. He ended up renting out his mansion to a couple who were displaced after hurricane Irma. They agreed to pay him $30,000 per month to rent while Scottie continued to market the property for sale.
It was alleged that the couple apparently trashed the home completely. Scottie filed a lawsuit asking in excess of $100,000 to cover the damages, which included the fact that the couple apparently allowed their pets to go to the bathroom inside, on the furniture.
But it turned out that the real financial hurt for Scottie came about as a result of losing his homestead exemption on the property because he was no longer living there. To make matters worse, Scottie apparently didn’t realize that he could no longer claim the homestead exemption and he ended up claiming it improperly.
The Penalty For Illegally Claiming A Homestead Exemption
The penalty for falsely claiming a homestead exemption is threefold and pretty steep. First, the property appraiser assesses you for the amount of taxes you would have otherwise paid had you not wrongfully claimed the tax exemption. This means that you must pay the full amount of taxes. The next phase of the penalty is a 50% fine. If, for example, the amount you should have paid is $10,000 more than what you paid with the homestead exemption, then you’ll pay the $10,000 plus another $5,000. Finally, there’s interest on these payments, which accrues at a hefty 15% annually.
If you’d like to learn more about the homestead exemption or have other legal or estate issues you’d like to address, get in touch with Jeff Baskies at https://katzbaskies.com/KatzBaskies/jeffrey-baskies.html.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Jeff Baskies is a longtime and well-respected attorney in Boca Raton. He concentrates his practice in the areas of estate planning with wealthy families, entrepreneurs, and athletes and celebrities. He’s a graduate of Trinity College and Harvard Law. He’s licensed to practice in Florida and Massachusetts.
He also contributes to the Steve Leimberg Asset Protection Planning Newsletter where I found some interesting articles that he was writing. And I’ve asked him to join me. We’ve actually been friends for quite a while and I’m so happy to have you in the studio.
Jeff Baskies: Thanks for having me, Steve, it’s a pleasure to be here.
Steve Pomeranz: So why have I invited you? What is this topic all about? It’s kind of a serious topic, but it’s kind of a fun topic too. And it has to do with our homestead exemption. Sounds boring I know, but if you own a house in Florida, you’re aware of the homestead exemption because it’s got some basic benefits.
And the other thing that’s interesting about that article was the case involved Scottie Pippen, who is the former NBA Allstar. He played 17 seasons in the league. He’s a six-time world champion, a former dream team member and a two-time Olympic champion. So if everybody remembers Scottie Pippen, we know that Scottie’s used to winning. But I guess in this case that we’re going to talk about, he’s having some difficulties because he bought a house in Fort Lauderdale for, well, I don’t know how much, but he tried to start selling it at $16,000,000, but something has happened. And I’d like you to take it forward from there.
Jeff Baskies: Yeah, absolutely. Now I don’t think what’s happened had an impact on the property value, to be fair. But my understanding is that the price has been dropped below $10,000,000 at this point. So he’s definitely not winning in the real estate market in Fort Lauderdale.
The case involves Scottie renting the house, however, after Hurricane Irma to a married couple who were displaced as a result of their house being damaged and apparently agreed to pay him $30,000 a month to rent the mansion in Fort Lauderdale while Scottie continued to market it for sale. As a result of their moving into the property, there was a lease that was entered into that required them to maintain the property in what was called pristine condition. So it’s not your typical rental where perhaps you just have to keep it broom clean condition or something like that. There was obviously a very specific intention by Scottie Pippen that the house had to be kept cleaner than average, to the highest level of cleanliness because he was still showing the property.
Steve Pomeranz: Yeah, he wanted to still show the property. And I think this lease was for seven months or something like that.
Jeff Baskies: Exactly, and they needed seven months because their house was being repaired. They got insurance money apparently for the damage from the hurricane and then they intended to move back.
So at the end of the term, it turns out that apparently they completely trashed his place. Which is what lead-
Steve Pomeranz: Allegedly maybe?
Jeff Baskies: Which is what lead to the lawsuit. I said, apparently.
Steve Pomeranz: Yeah, okay, apparently.
Jeff Baskies: So, Scottie Pippen finds his house in less than pristine condition. How’s that?
Steve Pomeranz: Yeah.
Jeff Baskies: And files a lawsuit alleging in excess of $100,000 in damage done to his home because of many things, but probably most importantly, he claimed that they allowed their dogs to urinate and defecate on the property which destroyed much of the furniture that had to be replaced.
Steve Pomeranz: Okay, so we got the facts. But why do we care about this? And one of the reasons has to do with the fact that Scottie may have been living on the property and it may have been his primary residence. But because he started renting it out, something changed, and also I think he moved as well.
Jeff Baskies: Correct. So one of the primary benefits of owning a homestead in Florida is that you get a benefit for ad valorem tax purposes. We have a reduction in the value by approximately $50,000, sometimes more for widows and whatnot. But approximately a $50,000 reduction in the taxable base and perhaps more importantly, there’s an annual three percent increase cap. Meaning that the value of your property can’t go up by more than three percent for purposes of the tax assessment to the local community.
Steve Pomeranz: Yeah, so even if the house value goes up 10%, the tax cost won’t go up more than three percent?
Jeff Baskies: Exactly and that’s very important for people, especially who’ve had their homes for a long time and they’ve appreciated in value. If you do not have a homestead exemption, it’s not that the increases are unlimited, but it can go up by as much as 10% per year. So again, cumulatively, the difference between a three percent cap and a 10% can mean a lot of money in taxes.
Steve Pomeranz: Now also in the State of Florida, your home or your homestead has certain high level of asset protection from creditors, right?
Jeff Baskies: Absolutely. So perhaps the most famous protection that homestead property offers to the residents of Florida is that as long as you’re on less than half an acre, if you’re within a city or 160 acres if you’re outside of a municipality, as long as your property is on less than the acreage, the property is exempt from the claims of your creditors, regardless of its value.
So, for example, if you’re on a third of an acre in the city of Boca Raton and your property’s worth $25,000,000, the entire value of the property is exempt from creditors, which is very very unique. Very few states, in fact, have that level of exemption. And many states have restrictions of as little as $250,000 of value or less.
Steve Pomeranz: Okay, now, we don’t know whether Scottie Pippen was using it for that particular purpose. But we do have another story to tell of someone who actually was trying to avoid liability as a debtor. Someone was coming after him and he did move to Florida. We’ll get to that in a minute.
So Scottie Pippen sues this couple, it becomes public knowledge. And I guess the price of being famous is that it gets published and the media picks it up immediately because he’s a celebrity. And now we’re talking about it, right? So-
Jeff Baskies: That’s great Steve, for us.
Steve Pomeranz: There’s good parts to be a celebrity and there’s some downside as well and this is one of them.
Jeff Baskies: So the downside for Scottie Pippen is that as soon as he no longer resided in the homestead property and he rented it out these tenants, he was no longer eligible to claim it as his homestead property for tax purposes.
Steve Pomeranz: But he did.
Jeff Baskies: But he did.
Steve Pomeranz: Yeah.
Jeff Baskies: Now the way it works so everybody understands is that, basically, you apply for the homestead exemption when you move into the property, which I assume he did because he had the exemption. And as long as you reside there you essentially are automatically renewed every year.
So the property appraiser will send those little postcards that you get in the mail just to say, “You’ve been renewed. If for some reason you’re not entitled to be renewed, let us know.” But it’s not that Scottie had to affirmatively do something every year to say he was eligible. So it’s possible he simply just forgot or didn’t pay attention. But he was continuing to claim the benefits of the homestead exemption, even though once he had moved out and rented the property, he wasn’t entitled to them.
Because of his celebrity, because this lawsuit became public, the property appraiser for Broward County where this property was located, investigated and decided that Scottie Pippen, in fact, was not eligible.
Steve Pomeranz: Well, as soon as you’re renting it out I think you’re automatically ineligible.
Jeff Baskies: That’s correct. As soon as you rent it out you’re supposed to voluntarily-
Steve Pomeranz: So that’s an important lesson here.
Jeff Baskies: Very important lesson. If you rent your homestead property, you’re no longer entitled to the ad valorem tax benefits. You are, in fact, obligated to tell the property appraiser you’re no longer eligible. Of course, we don’t know how many people, in fact, do that. In this case, for example, Scottie Pippen did not.
Steve Pomeranz: Hey, I have a question. So, let’s say I have a property and I have a guest house in the back, and I rent out the guest house, does that prevent me from claiming the homestead exemption?
Jeff Baskies: Actually, it doesn’t, so long as you continue to reside in the primary residence.
Steve Pomeranz: Okay, all right.
Jeff Baskies: If you rented a room above the garage you shouldn’t lose your homestead exemption.
Steve Pomeranz: Okay, all right, well, that’s good to know.
Jeff Baskies: But if you rent out the primary residence, you would.
Steve Pomeranz: Okay, so I guess the lawsuit’s ongoing. We haven’t really heard anything about it. It’s $100,000 now. Scottie Pippen was notified that he no longer had the homestead exemption so he had to pay penalties. Now, what are the penalties if, in fact, I’ve claimed an exemption that I’m not entitled to?
Jeff Baskies: The penalties are really threefold. First, the property appraiser will assess you for the amount of tax you should have paid if you didn’t wrongfully claim the exemption. So basically, you have to pay the amount you would’ve paid if you didn’t have the homestead exemption.
Steve Pomeranz: Okay, fair enough.
Jeff Baskies: In addition, you have to pay a 50% penalty. So if the amount you should have paid was $10,000 more than what you did pay, you not only owe the $10,000 but you owe another $5 000.
And then there’s interest that accrues at 15% per year.
Steve Pomeranz: Pretty steep.
Jeff Baskies: Very steep. Now in Scottie Pippen’s case, he was lucky. Maybe this is a benefit of celebrity. The year in which he rented it and it became public is the year in which the property appraiser went and investigated. Now imagine if Scottie Pippen lost his entitlement one year, but continued to claim it for 10 years. So now he would owe the differential in taxes not for one year, but for 10, plus a 50% penalty, plus 15% interest per year.
Steve Pomeranz: One of the objects that Scottie Pippen accused the renters of losing or destroying was some Cuisinart knives, right?
Jeff Baskies: Absolutely. That’s what it says in the lawsuit.
Steve Pomeranz: That’s what it says. We’re only repeating what we read here. And so I guess as a little dig back to Scottie Pippen, this couple actually started a GoFundMe page for $14 in order to get the money, to raise the money to pay Scottie Pippen back for the Cuisinart knife set.
Jeff Baskies: And from what I understand based on my Google search, it looks like they’ve actually raised about $30, so they may get him two knife sets Steve.
Steve Pomeranz: Oh, that sounds good. I want to change from Scottie Pippen because there’s another case here that I thought was really fun to read. And it has to do with the games that people play with this homestead exemption.
So in this case, there was a doctor from California, and as I mentioned earlier, due to a liability that he incurred because of an accident that he was involved in and I guess he wanted to avoid paying, he moved to Florida and bought a one-and-a-half million dollar condo in Palm Beach. And then he claimed that his interest on the property was exempt from this judgment against him because it was his primary property and he was living here.
Jeff Baskies: Yes, my understanding is he actually bought the property in Florida while the lawsuit was still pending, before the judgment was entered. He ultimately lost the lawsuit. A judgment was entered against him. And in the efforts to try to collect on the judgment, the plaintiffs found out that there was an allegation that a million-and-a-half dollars was now exempt from their claims because he’d purchased a Florida homestead.
So they investigated independently to see if, in fact, he was residing in Florida and thus eligible for the protection. Because, of course, Florida homestead protections are only afforded to Florida residents. So if you’re not literally residing in Florida you don’t get the benefits either of the ad valorem tax benefit we’re speaking of with Scottie Pippen or the creditor protection in this case.
And interestingly in their discovery they found out that the doctor was spending most of his time outside of Florida in a unique way. Do you know what they found?
Steve Pomeranz: Yeah, no, I’d like you to tell us.
Jeff Baskies: So they checked on his gym records and it turns out that he went to gym like 300 days out of 365 in the year before the lawsuit. And they determined that, in fact, it wouldn’t have been possible for him to do so if he wasn’t in California.
Steve Pomeranz: Well, I’ll tell you, I never thought much of our tax collectors and especially our homestead tax collectors. But I got to tell you they’re really on the dime here. I mean this is like a CSI case. I mean going to the guy’s gym records for goodness sake, really?
Jeff Baskies: Well, to be fair, the forensic work in that case was performed by a plaintiff who was looking to get a large judgment, so it was worth their time.
Steve Pomeranz: So yeah, they had a motivation.
Jeff Baskies: Exactly. Now the property appraisers, and this is an important lesson to take away, the property appraisers do look for what they would call homestead tax fraud or ad valorem tax fraud. And for example, the property appraisers in Florida frequently are known to speak with the Department of Revenue in states like New York, where the State of New York Department of Revenue is looking for people who really owe income taxes up in New York. And they communicate with the property appraisers in Florida and they actually share information. And sometimes it leads to an audit of an income tax return in the State of New York. Or conversely, sometimes it leads to loss of homestead exemption in Florida.
Steve Pomeranz: And they can kind of see your driving patterns because we have SunPass down here, they have something up in New York and they can really click and see how much you’ve actually been up there.
Jeff Baskies: That’s correct. Their forensics are pretty significant.
Steve Pomeranz: Oh, boy.
Jeff Baskies: So they will look at things like your SunPass or the equivalent up North. They will look at things like your utility bills. So, for example, if you claim that you’re in Florida in the summer but your electric bill is only $40, they know you weren’t here right?
Steve Pomeranz: Okay, yeah. So, don’t mess with the man, that’s what I’m going to-
Jeff Baskies: Don’t mess with the man. Let’s be straight with our taxes.
Steve Pomeranz: Yeah, all right. My guest Jeff Baskies, a well-respected attorney in Boca Raton and concentrating on areas of estate planning. Thank you for joining me, Jeff.
Jeff Baskies: It’s my pleasure. And we hope more people come to Florida and, in fact, reside here and take advantage of the homestead exemption.
Steve Pomeranz: To hear this and any interview again, if you have a question about what we’ve just discussed, a homestead exemption question, I’ll actually send it over to Jeff. But don’t forget to visit our website stevepomeranz.com to join the conversation. And also don’t forget to sign up for our weekly update to hear about all of our upcoming live events and important topics that we’ve covered, straight into your inbox. That’s stevepomeranz.com.