If you’ve been shopping for a new home, then you know that you have to budget for more than just a mortgage. Other expenses to keep in mind include interest, homeowners insurance, mortgage insurance, potential HOA fees, and, of course, property taxes.
But for many homeowners, there is a simple way to reduce at least the last item on that list, their property tax bill. The homestead exemption, sometimes more accurately called the “homestead tax exemption,” is a way to shelter a portion of your home’s value from property taxes, thereby reducing the property taxes that you owe.
The homestead exemption shields a certain amount or percentage of your home’s assessed value from taxes. In states where the exemption is a fixed amount, it lightens the tax burden on those who own less valuable property, which means that it turns the property tax into a progressive tax — a tax that increases as taxable income increases. In states where the exemption is a percentage, people who live in more expensive houses will benefit from it more.
Here’s an example. If your home is valued at $300,000, and your state’s property tax is 1% (the average property-tax rate in the U.S.), your annual property-tax bill would be $3,000. But if you were eligible (and successfully applied for) a homestead exemption of $50,000, your home would be taxed at only $250,000, making your tax bill $2,500. That saves you $500 a year.
Of course, the exact amount of the homestead exemption varies by state, as do the stipulations about who qualifies and the rules for how to apply.
The homestead exemption only applies to primary residences. You cannot get a homestead tax exemption on a vacation home, a second home, or on an investment property. Instead, the property in question must be a home that you actually occupy, and that is considered your legal residence for all purposes.
Some states also set an upper limit on the value of homes qualifying for a homestead exemption. Check with your county’s tax assessor to find out if that applies in your state. This information can usually be found on their website.
Eligibility for the homestead tax exemption varies by state. In some states, every homeowner automatically qualifies for the exemption. However, in most cases, eligibility depends on your income level and the value of the property in question.
In addition, in many states, you will need to fall into certain categories in order to be eligible for the homestead exemption. These categories commonly include the following groups:
Can you combine benefits if you fall into more than one of the above categories? As with everything else about the homestead exemption, that depends on what state you live in, and is best found out by consulting your local tax assessor directly.
Most U.S. states have some form of a homestead exemption, but it may not be the kind of tax exemption we’ve been discussing — instead, it may be an exemption that protects a home from creditors. Some of the states with homestead exemptions as it relates to are:
Be sure to check your local tax assessor’s or local government website to figure out if your state has the homestead tax exemption. However, every state other than Delaware offers some kind of property tax break for veterans or specifically disabled veterans.
If your state doesn't offer a homestead exemption, know that you can always deduct your property taxes on your federal tax return.
If you qualify for the homestead tax exemption, you gain the benefit of cutting down your tax bill, thereby making homeownership a more affordable prospect.
Once you know if you qualify and how much your tax exemption might be, you can use our mortgage calculator to figure out how it would affect your monthly payments.
You can find information about how to apply for the homestead exemption on your county or local tax assessor’s website. In some locations, you can apply online. In others, you’ll need to mail in the application.
Either way, you will also probably need to include documentation that proves your eligibility for the exemption, such as military discharge papers or your annual tax returns.
Be aware that scammers sometimes request payment for filing homestead exemption applications. If you encounter something like this, avoid it and go directly to your local government website instead—there should not be any cost for you to claim this exemption. The point is to save you money.
If your financial, health, or homeownership situation changes, you may qualify for a homestead tax exemption even if you didn’t before. Check with your local tax assessor to find out the process for reapplying.
In some states, you may need to reapply for the homestead exemption yearly. The tax assessor is the best source for information about that as well.
If you move into a new home, you will likely need to reapply for the homestead exemption. There are some exceptions, though. For example, if you temporarily live in a hospital or are away on military service, your permanent residence hasn’t changed so you are still eligible for the homestead exemption on your property.
Another kind of homestead exemption protects a set amount — which varies by state — of your home’s value from creditors who want it as payment for outstanding obligations. This kind of homestead exemption helps prevent foreclosures in moments of financial struggle, such bankruptcy or the death of a spouse.
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