Definition of Homestead Exemption
A homestead exemption reduces property taxes for homeowners. In several places, a legal provision protects a house from creditors after the death of a spouse or bankruptcy declaration. The homestead tax exemption offers surviving spouses a tiered scale of property tax relief, mainly benefiting residences with lower assessed values.
The homestead exemption provides refuge and financial security. This can prevent the forced sale of a principal house. The homestead exemption doesn’t halt bank foreclosures if homeowners fail to pay their mortgage.
How Homestead Exemptions Work
You may qualify for a homestead exemption if you wish to lower your primary residence’s property tax burden. Depending on where you reside, you may not even need to be a specific citizen to qualify. Every homeowner gets the exemption in some states. Many states need you to be:
- A disabled person
- An elderly person
- A veteran
- A disabled police officer or first responder
Some homestead exemptions reduce your home’s taxable value flatly. Other homestead property tax exemptions are percentage-based. The first strategy reduces lower-valued houses more. The latter is preferable for high-value property owners.
Every state or territory except New Jersey and Pennsylvania has a homestead exemption provision. The application of the exemption and its protection against creditors vary by state. Some states automatically provide the homestead exemption, while others require homeowners to apply.
A person can only claim exemptions on their principal dwelling, which is termed a homestead property. Moving to a principal residence requires a surviving spouse to reapply for the exemption.
Homestead tax exemptions protect part of a home’s worth from property taxes. The benefit may require homeowners to apply, so check with their local government.
Creditor Protection Under Homestead Exemption
State exemptions for homesteads differ. Florida and Texas offer limitless house financial protection against unsecured creditors, but acreage restrictions may apply. Creditor protection limits vary by state from $5,000 to $500,000. Many states cost $30,000–$50,000.
The protection restrictions apply to the homeowner’s equity, which is the property’s worth minus the mortgage and other financial claims. Creditors can force a homeowner to sell if equity falls below the limit, but homeowners cannot. If homestead equity surpasses boundaries, the homesteader may keep some income.
Protecting the homestead property does not apply to secured creditors, such as the mortgage holder. The homeowner’s protection only applies to unsecured creditors who may use the home’s worth to pay claims against their assets.
Insolvency Protection
If filed after April 1, 2019, federal bankruptcy law protects a house from sale if the owner’s equity is less than $25,150. That exemption is $23,675 for cases filed before then.
Most states require homeowners to utilize state limitations, which are usually better. About one in three states lets homeowners utilize the federal or state limit.
Despite not having a homestead exemption, New Jersey and Pennsylvania bankruptcy filers can use federal limitations. A bankruptcy only protects against unsecured creditors. The bank can still foreclose on the residence.
Deducting Homestead Exemption
The municipal tax assessor’s office applies a homestead or property tax to homes depending on their assessed value. The homestead tax can be a fixed amount or a percentage of the property value.
State legislation may provide continued property tax savings from the exemption. These exclusions can help surviving spouses stay in their houses if their partner dies, which reduces their income.
Homestead tax exemptions often reduce a set tax, such as exempting the first $50,000 of assessed value and taxing the rest at the standard rate. For instance, a $50,000 homestead exemption would only tax $100,000 of the assessed value of a $150,000 property. The tax on a $75,000 property would be $25,000.
Fixed homestead tax exemptions make property taxes more progressive and beneficial for smaller residences. Some municipal or state sales taxes fund the exemption.
Homes must be permanent residences to qualify for a homestead exemption. These exemptions don’t apply to other properties.
Example of Homestead Exemption
Say your home is worth $300,000 and has a 1% property tax rate. Paying property taxes would cost $3,000. If you were qualified for a $50,000 homestead tax exemption, your tax bill would be reduced to $2,500 since your home’s taxable value would drop to $250,000.
Who Can Get a Homestead Exemption?
Homestead exemption eligibility varies by state. If you’re a veteran, disabled, senior, or low-income, you’ll likely qualify. Combine exemptions if you qualify for more than one. An exemption may also restrict house value. Question your local tax assessor.
How can I get a homestead exemption?
Visit your county or municipal tax assessor’s website for homestead tax exemptions. Some states need applications, although many are online. Follow your state’s application deadlines.
Some fake sites may solicit cash to fill out an application. Your county or municipal tax assessor will not charge you to apply for a homestead tax exemption.
States with homestead exemptions?
State homestead exemptions are common. Massachusetts and Rhode Island have exemption limitations of $500,000. New Jersey and Pennsylvania do not. Instead, several jurisdictions have universal homestead laws that protect surviving spouses from creditors.
How can you get a Florida homestead exemption?
Florida residents must have lived there permanently before January 1 of the year they’re applying. Florida residents and U.S. citizens or permanent residents must apply. Applicants cannot claim tax exemptions on any other U.S. property. Complete and submit an exemption application to the county property appraiser by March 1 to meet the statutory deadline.
Florida offers a $50,000 homestead tax exemption. All property taxes—including school district taxes—start at $25,000. For non-school taxes, assessed values exceeding $50,000 are exempt up to $25,000.
Bottom Line
Homestead exemptions exempt property taxes. The exemption safeguards homeowners’ house values from property taxes, creditors, and conditions related to spouse death. Homestead exemptions provide refuge for surviving spouses.
A primary dwelling is the sole property eligible for the exemption. Some states automatically provide homestead exemptions, while others need a claim.
Conclusion
- Homestead exemptions lower state property taxes.
- The exemption can shield a house from creditors if a spouse dies or a homeowner declares bankruptcy.
- Some states provide surviving qualified spouses property tax relief.
- The exemption applies only to the principal dwelling.
- Most states provide homestead exemptions, although regulations and protection limitations differ.
