A recent client wanted to know if he would lose his homestead protection by temporarily renting out his homestead property to a tenant.
In Florida, a judgment debtor’s homestead is absolutely protected from creditors. There is no monetary cap on the amount of the protected homestead, however the protection is limited to 1/2 acre in a city and 160 acres outside of a city.
Facts of the Case
The client purchased a home in Florida where he intends to permanently reside with his family. There was a judgment against the client in North Carolina. The client wanted to make sure that his new Florida home would be exempt from collection on the judgment under the Florida homestead exemption in the Florida Constitution.
The debtor will obtain a Florida drivers license, register his family cars in Florida, and work remotely from his Florida home.
The debtor will retain ownership of his prior homestead in North Carolina. He intends to spend most of the summers in North Carolina to escape the Florida summer heat.
While in North Carolina, he wants to rent the Florida home to vacationers through temporary rental websites such as Airbnb or Vrbo. He hopes to rent the Florida home 30 to 60 days each year. He will rely on the rental income to pay the costs of the two homes.
Effect of Rental on Homestead Status
The client was worried because of something he read on the internet. The client found a website that said that a Florida resident will forfeit homestead status if he rents the Florida property for more than 30 days during any calendar year.
The web article referred to Florida statute 196.061, entitled, “Rental of homestead to constitute abandonment.” The statute says that rental of a homestead may constitute loss of homestead status for tax purposes.
Protection from Creditors vs Tax Exemption
The debtor’s question is another illustration of confusion of the Florida homestead exemption for tax purposes and the homestead exemption from creditors.
The statute the client found expressly pertains to abandonment of “homestead for tax purposes.” The Florida homestead tax exemption is determined on January 1 of each calendar year. The statute says that rental and abandonment after January 1 does not affect the exemption for that year, but it may affect the exemption in future years.
In contrast, the homestead protection from creditors is lost only after a homeowner permanently abandons the Florida property as his primary residence. The owner’s absence from the home does not affect homestead status so long as the debtor intends to return the home.
There are Florida court decisions specifically dealing with temporary rental of a Florida homestead. For example, a bankruptcy court case held that a debtor could exempt a homestead property even though the debtor rented the property temporarily throughout the year. Another case said that a debtor who leased a Florida property most of the year while living out-of-state could protect the property as a Florida homestead because the debtor did not establish any other permanent residence.
As a result, the client’s homestead would be protected from creditors even if the client temporarily rents out the home during the hot summer months.
About the Author
Jon Alper is an expert in asset protection planning for individuals and small businesses.
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