An Overview of Homestead Exemption

Many states offer a homestead tax exemption that can reduce property taxes and help shield you from creditors in the event of bankruptcy. The rules and amounts vary wildly, but it could save you significant money on your annual taxes.

Some homestead exemptions reduce your taxable value on a flat-dollar basis, while others are based on a percentage of the assessed value. For higher-value properties, the latter may be better.

Eligibility

If you’re struggling with financial issues, including an illness or loss of your home, a homestead exemption may be available to protect you from bankruptcy or other creditors. Homestead tax exemptions are governed differently in each state.

The exemption amount varies, but in many cases, it can lower your property tax bill by a specific dollar amount. In addition, homestead tax exemptions can help you to qualify for other tax breaks.

Most states have some homestead property tax exemption, though not all. Some states also have general homestead laws that allow homeowners to claim an entire house as a primary residence.

To receive a homestead tax credit, you must be a legal or beneficial homeowner and occupy it as your permanent residence. Cottages, second homes, and the property you own and rent/lease to others do not qualify for this credit.

If you qualify for the exemption, you must only reapply if you change ownership or move. When you do, the capped value will be automatically “ported” to the new location.

Requirements

A homestead exemption is a type of property tax credit that reduces the taxable value of your primary residence. It’s designed to provide a much-needed financial boost for people facing challenging circumstances like loss of income, disability, or bankruptcy.

Many states offer a homestead exemption, and it’s worth checking with your state or local government to find out about the program. The eligibility requirements vary by state and county, but most states allow homesteads to be exempt from property taxes up to a certain percentage of the appraised value.

A homestead exemption helps to safeguard your property from creditors throughout the probate process. The legal process of verifying the validity of a will, finding heirs, and transferring assets to them is known as probate.

If you own a homestead and are concerned about bankruptcy or other financial setbacks, it’s a good idea to check with an experienced lawyer. An attorney specializing in estate probate law can advise you about whether the laws of your state protect your homestead property and whether it would be a good choice for you to file for bankruptcy protection.

Generally, you must own and occupy your home as your principal residence on January 1st to qualify for a homestead exemption. However, there are exceptions in some counties, and the deadline to apply can vary.

Portability

Portability is a feature that was added in January 2008. It allows homeowners to transfer their accumulated Save Our Homes (SOH) benefits from one homestead property to another.

Porting is moving an accumulated SOH benefit from one property to another, either as a whole or in part, subject to a $500,000 maximum. The amount is based on the difference between the assessed value of the old homestead and the new homestead’s just/market value, which is limited to 3% per year or the Consumer Price Index (CPI), whichever is less, under the SOH cap.

When calculating the amount to port, there are several factors to consider, such as how much of the SOH benefit is eligible for transfer in the first place, how much of the former homestead you have accumulated, and what the Just/Market Value is on the new property.

Portability is a valuable feature for many homeowners, and it may be the key to saving significant amounts of money on the homeowner’s taxes. However, it is essential to note that portability is optional. 

Taxes

In most states, a homestead exemption is a dollar amount or percentage of the value of your property that is excluded from the calculation of property taxes. Therefore, it can reduce your tax bill by a significant amount.

Depending on the state, you may be eligible for this exemption if you own and occupy your primary residence, are 65 or older, or are disabled or a veteran. Some homestead exemptions are also available for surviving spouses or partners.

This exemption is designed to protect the equity in your home from being used for debts like auto loans or credit card balances. Unfortunately, it’s unavailable if your house is in foreclosure or you have a lien against it.

It also prevents your lender from forcing you to sell the house if you lose your job or are sick and can’t pay off the debt. This exemption can save you thousands of dollars in property taxes each year. In that case, you can apply for a basic homestead exemption. You only need to use it once unless you move or sell your home.