What is a Homestead?
The word Homestead is used to refer to a permanent free-standing single-family home, or a condo, or a manufactured home occupied by the owner on the mortgage or title as their principal residence. This is a very broad and open definition and the exact definition of a homestead varies by each state.
Each homestead law allows a property owner to register a portion of their property as an actual homestead. Doing this offers the property owner legal protections as described within the law. In some states, homestead laws mandate a maximum amount of property that is allowed to be claimed as a homestead as well as the type of property able to be claimed.
Homestead exemption and its benefits
A homestead exemption is a tax credit or exemption that property owners are able to claim for their primary home to minimize property taxes. This is a nice way to provide some property tax relief for homeowners. It is most often concentrated toward lower-income homeowners and senior homeowners. It can be a significant benefit to some with a very small initial cost.
The Lincoln Institute of Land Policy states that homestead exemptions and credits are the most common type of property tax benefits used by homeowners. These are determined at the state and local level and can be very different from state to state or even city to city.
These exemptions also provide legal protection in some areas. For example, some homestead protections include protection from creditors hoping to collect on debts. They can also protect someone inheriting the home or that owns a home when a spouse has passed on. It does not protect when a mortgage is defaulted on.
How to Apply for Homestead Exemption
To be considered for homestead exemption status the homeowner has to apply for it themself and the process can be different in every location. Some locations may require homeowners to apply for homestead status every single year. Most often these tend to be in areas with a focus on helping seniors, veterans, or disabled persons. These types of homestead exemptions are often bigger as compared to exemptions for a broader base of primary resident homeowners.
Who is eligible for Homestead exemption?
Those homeowners eligible for homestead exemptions may be restricted based upon income, property value, disability, veteran status, or age. Most often homestead exemptions fall into a few categories the first being that it needs to be your primary home and the second, most often these programs are reserved for seniors age 65 and older. There are some third-category programs that allow exemptions for other homeowners needing extra financial help like veterans, the disabled, and target groups such as low-income homeowners.
How do exemptions work?
The fine details of how these exemptions work depend upon where a home is located. Homestead exemptions are based on a home's assessed value and can work in a couple of different ways:
Flat-dollar homestead exemption: exemption helps to reduce the taxable value of a property to a fixed amount. So if a home is valued at $300,000 and has qualified for a $15,000 exemption this means that you only pay the current local property tax percentage for $285,000.
Percentage Homestead exemption: this exemption lowers the taxable value of the property by a specified percentage. In a state with a 15% homestead exemption if a home is valued at $200,000 the homeowner is only responsible to pay the current local property tax percentage on $170,000.
The amount that a homestead exemption will offer on a property can vary greatly across the country but it is helpful in every area that it is offered. It could be well worth it to look into the possibility of qualifying for a homestead exemption especially since property values increased dramatically all over the country this year.
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