What Is a Homestead Exemption and How Does It Work?
A homestead exemption is a legal protection you can apply for as a homeowner to reduce your annual property tax bill. It can also shield your home equity from certain creditors if you run into financial trouble. Most states offer homestead exemptions and generally have a simple application process.
Key takeaways
- A homestead exemption can help you minimize your property tax bill.
- It can also protect some or all of your home equity from creditors if you file for bankruptcy.
- The level of protection varies by state, but is usually a fixed amount you can “exempt” from taxes or creditors.
How does a homestead exemption work?
When you have a homestead exemption on your home, it offers protection from creditors if your spouse dies or you file for bankruptcy. However, it doesn’t protect you from foreclosure if you miss your mortgage payments. A homestead exemption reduces your home’s taxable value, which helps lower the property taxes you owe each year.
The homestead tax exemption varies by state. For example, in some states, you can exempt all of your home equity, while others only allow you to exempt a certain amount. Some states provide a homestead exemption automatically; others require the homeowner to submit a form.
Homestead exemptions aren’t available for vacation homes or investment properties.
Homestead exemption example
Let’s say your home is worth $300,000 and you’re eligible for a $5,000 homestead exemption. This means your home’s taxable value is $250,000, instead of $300,000. If your property tax rate is 1%, here’s how the savings break down:
With a homestead exemption, your tax bill would be $2,500 (1% of $250,000)
Without a homestead exemption, your tax bill would be $3,000 (1% of $300,000).
You’d save $500 in property taxes with a homestead exemption.
Who’s eligible for a homestead exemption?
Eligibility requirements for a homestead exemption vary by state. One of the key requirements is occupancy status — homestead exemptions are typically only available for primary residences. Some other factors that may impact eligibility include your age and income, as well as your marital, veteran or disability status.
What information do I need for a homestead exemption?
To file a homestead exemption, you’ll need to provide information about yourself, including your name, birth date and marital status, as well as information about your home, including the address and your purchase date. If you’re filing a homestead exemption as an individual with a disability, you may also need to provide a copy of your Social Security award letter or a letter from your doctor.
States with homestead tax exemptions
Click on your state to see what exemptions are available and get a link to more information. Note that seniors are defined as those 65 and older. If you’re curious how your state stacks up, here’s where homeowners pay the highest and lowest property taxes.
What are the benefits of a homestead exemption?
A homestead exemption provides two main benefits for homeowners:
Property tax reduction: Filing a homestead exemption reduces your home’s taxable value by “exempting” a certain amount. This, in turn, lowers your property tax bill.
Protection from creditors: A homestead exemption can keep your home safe from creditors if you encounter financial hardship. Creditors can’t force the sale of your house to repay your debt if your home equity amount is less than your state’s exemption amount.
How to apply for a homestead exemption
1. Find out the requirements in your state
The first step is to look up the specific requirements in your state. You can find this information by visiting your state’s tax revenue department website. Alternatively, you can do a Google search for “(your state) homestead exemption.”
2. Collect the necessary information
The information and supporting documents you’ll need to submit along with your homestead exemption application also vary by state. However, you’ll generally need to provide a government-issued ID (like a driver’s license) and Social Security numbers for you and any co-owners.
3. File the homestead exemption with the appropriate government office
Once you’ve confirmed your eligibility and what you’ll need to apply, submit the homestead application in person, online or over the phone to the appropriate government agency. This is usually your local tax assessor or property appraiser’s office.
Other ways to lower your tax bill
- Look for other tax relief. Besides homestead exemptions, you may qualify for other tax breaks, such as the mortgage interest deduction or state and local taxes (SALT) deduction.
- Limit improvement and remodeling projects. If you construct an enclosed porch to your home, build a deck in the backyard or install a large tool shed, your home’s value will likely increase and with it, your property tax bill.
- Talk with the assessor. Look at your neighbors’ home values — if another home identical to yours is valued lower, call the assessor and ask if there could’ve been an error. You could also pay to have an independent appraiser give a second opinion.
- File a tax appeal. If you notice that your tax bill itself has errors — such as the wrong square footage — file a tax appeal with your local government. A lawyer may be able to help you with this process.
Frequently asked questions
Once you’re approved for a homestead exemption, you typically don’t need to reapply on an annual basis. However, you may need to notify the appropriate government agency if you move, sell or rent your house.
If you’re unsure whether you have a homestead exemption, contact your local tax assessor or appraiser’s office. They should be able to verify if a homestead exemption was filed on your property.
Some counties allow you to file for a homestead exemption online, while others require you to send by mail or drop off the completed form at the appropriate government office.
In some cases, you may need to pay a small recording fee to file a homestead exemption. However, some states don’t charge any fee at all.