A homestead exemption lets you exclude some of the value of your home from being taxed. In some cases, you can also protect part of its value from creditors or legal proceedings.
Homestead exemptions are state laws. There can be significant differences from state to state. Learn whether you qualify for a homestead exemption and how it can help you.
Definition and Examples of Homestead Exemptions
A homestead exemption is a special condition that may apply to your home under state law. It can lower the value of your home for property taxes or protect you in some legal proceedings.
- Alternate name: Homestead protection
In some states, a homestead exemption allows you to reduce the value of the property on which you pay taxes. For example, Florida homeowners can exempt up to $50,000 from their assessed property values. So, a $400,000 home might only be taxed on a value of $350,000 due to the homestead exemption. However, it’s not always that simple. Certain exceptions apply, such as how, in Florida, only the first $25,000 exemption applies to all taxes, whereas the next $25,000 doesn’t apply to school district taxes.
In other states, the homestead exemption only applies to certain homeowners. In Ohio, for example, a homestead exemption of $25,000 applies to those 65 and older, or to those who are permanently disabled. An exemption of $50,000 applies to disabled veterans. Surviving spouses may also be eligible in some cases.
Homestead exemptions aren’t only about reducing a home’s value for property taxes, though. They can also be about protecting you from losing all your home equity due to legal or credit issues.
In California, a homestead exemption protects at least $300,000 of the value of your home (and more, in some cases) from legal judgments. While there are exceptions, this can mean that even in the event of a large lawsuit, some of the equity in your home is safe.
How Does a Homestead Exemption Work?
The homestead exemption often works by lowering the assessed value of your house that your property taxes are based on, or by protecting some of the value of your home. Because homestead exemptions are state laws, there are a lot of differences between how a homestead exemption works in one state and how it works in another.
In California, the homestead exemption automatically gets applied to the home you live in. However, you can also apply for what’s known as a declared homestead, which can help protect equity when you are in the process of moving between homes.
In other states, such as Florida, you first have to apply to get the homestead exemption. The good news, though, is that in many cases the homestead exemption automatically renews. You don’t have to worry about re-filing every year.
If your homestead exemption automatically renews, but your no longer qualify, it is usually your job to notify your local property appraiser’s office. If you don’t, you could face large tax penalties.
In most cases, a homestead exemption can only apply to your primary residence. State laws also have different definitions for what is a primary residence. For example, in Florida, you can rent out your home for up to 30 days per calendar year to still keep your homestead exemption. But if, say, you rent out your home during the whole summer every year, you could lose your exemption.
The dates for when to file for your homestead exemption also vary from state to state. In some places, you need to file within the calendar year in which you’re seeking the homestead exemption. In others, you have until the first few months of the following year, which aligns more with the general tax season.
Do You Need a Homestead Exemption?
If you own a home or are considering purchasing one, you should pay attention to the homestead exemption rules in your state. In some states, you may automatically have the homestead exemption applied to your home after you purchase it. In other states, it is likely still worth looking into because of the financial and legal benefits it can provide.
If you want to reduce your property taxes, filing for a homestead exemption could mean you pay less each year. If you live in a state with homestead protection against legal action, you likely hope you never have to rely on it. But just in case, it’s good to know what is protected when it comes to your family home.
While the rules apply at a state level, property taxes and related issues, such as the homestead exemption, are generally handled at the local level. Start by looking at your county’s website or contact the county office for more details about whether you qualify, and how a homestead exemption could benefit you.
- The homestead exemption often can help you reduce your property-tax bill.
- In some states, homestead exemptions help protect the equity you have in your homes during legal proceedings.
- Rules for what the homestead exemption does, who it applies to, and how to file for it differ from state to state.