When you obtain a homestead tax exemption, you exclude a percentage of your property value from your property taxes. While most states offer tax exemptions to homeowners, eligibility tends to differ a bit depending on where you live. In some states, a homestead tax exemption will only be granted if you meet their specific requirement for income, property value, disability, veteran status, or even age.
However, there is one standard that applies to all states, and that is that your home has to be your primary residence. Let’s explore how this tax exemption can work for you.
How does it work?
This particular class of tax break is only possible if you own a home; rental and investment properties are out of the question. Also, the method by which your exemption will be calculated depends on the state. You could be faced with either a percentage or dollar amount exemption, and each one has different advantages depending on the value of your home.
For example, having a less expensive home will prove advantageous if your state calculates your exemption using a flat dollar amount, while a more expensive home will benefit from a percentage method.
“Let’s say the assessed value of your home is $200,000 and your property tax rate is 1%. Your property tax bill would equal $2,000. But if you were eligible for a homestead tax exemption of $50,000, the taxable value of your home would drop to $150,000, meaning your tax bill would drop to $1,500,” explains Amelia Josephson, home buying expert from Smart Asset.
What are the benefits?
As we mentioned before, the biggest benefit of a homestead exemption is paying fewer property taxes! Typically, when a home’s value is assessed, the tax exemption will generally absolve $25-$75k of your home’s value, leaving you only owing what’s left.
Another great benefit of the homestead tax exemption is the surviving spouses of veterans code available in many states, for example, Tennessee Title 26 code states that “upon the death of an individual who is head of a family, any such exemption shall inure to the benefit of the surviving spouse and their minor children for as long as the spouse or the minor children use such property as a principal place of residence.” So, essentially, as long as the surviving spouse is able to continue paying the mortgage on the property, they will be able to retain homesteading rights.
And finally, if you happen to go into bankruptcy and have any assets seized, your home is immune from creditors taking your home in order to satisfy any debts, which is an undeniably comforting thought as a homeowner.
Who is eligible?
We discussed a few of the eligibility clauses at the beginning of this article, such as veteran status, income level, and disability. However, if you fall into more than one of these categories, most of the time they cannot be combined. In some cases, you’ll even have to contend with an upper limit on the value of a home in order for them to qualify for an exemption.
Overall, homestead exemptions are designed to reduce property taxes and encourage people to buy homes. Be sure to check with a local tax assessor, or give us a ring at 1st United Mortgage to receive expert guidance on becoming a homeowner today.