If you like paying fewer property taxes, you’ll like the Homestead Exemption. A Homestead Exemption, sometimes also called a primary residential exemption, is where you only pay property taxes on a portion of your home’s market value. Eligibility for the Homestead Exemption is usually dependent on the home being used as your primary residence.
To understand more about what the Homestead Exemption is and how it could affect your taxes, we’re covering the bases, including what a homestead exemption is and how it works, automatic vs. declared homestead exemptions, who qualifies for a homestead exemption, how to file for a homestead exemption, and which states have homestead exemptions.
By the end, you should have a better idea of how to reduce your taxes with the homestead exemption if it isn’t already applied to your property.
What Is Homestead Exemption?
To clarify, there are two different scenarios that are both described as the Homestead Exemption.
1. A homestead exemption can refer to a reduction in taxes offered when the property is used as a primary residence.
2. A homestead exemption can also describe the amount of equity in a home legally protected from creditor liens. Read up on homestead exemption rules by state if you want to better understand this protection.
Both require the owner to live in the property as their principal residence, but they differ from there. The first applies to taxes and the second protects a homeowner’s equity from creditors during adverse life events. The first is the more common application and is the focus of this article.
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How Does a Homestead Exemption Work?
At a very basic level, how a homestead exemption works goes something like this:
1. You live in the home as your primary residence.
2. Apply for the homestead exemption (if your taxing entity doesn’t automatically apply it). Be sure to include all required documents.
3. Receive a discount on your property taxes as determined by your taxing entity. The discount can be a percentage or a set dollar amount. If you have a home mortgage loan on your primary residence, remember that if your property taxes are included in mortgage payments, your mortgage servicer will pay this for you from your escrow.
4. Continue receiving the Homestead Exemption. It renews automatically for most taxing entities.
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Automatic Homestead vs Declared Homestead
Automatic vs. declared homestead refer to two different things.
• Automatic. Many taxing entities may automatically apply the Homestead tax exemption when you purchase the home. If you do need to apply for the Homestead Exemption, you usually only need to do it once. It’s typically renewed annually after your first application.
• Declared. A Declaration of Homestead is a legal document homeowners can file with their taxing entity to protect their home from creditors.
Who Qualifies for a Homestead Exemption?
Generally, homeowners who live in the home as their principal residence may qualify for the Homestead Exemption. Corporations or other entities that own properties do not qualify for the Homestead Exemption. If you have helped a family member purchase a home through a family opportunity mortgage, talk with a tax preparer about whether this property is eligible for the homestead exemption given that it is technically considered owner-occupied.
Other requirements may include:
• Have all your vehicles registered in the county where you want a Homestead Exemption
• Not have a Homestead Exemption for any other property
• Send in the Homestead Exemption application by the deadline
Examples of a Homestead Exemption
The amount of the exemption varies depending on your taxing entity. Here are a couple of examples of how the homestead exemption works in Texas and Florida.
• In Texas, you may qualify for a $40,000 exemption. If your home is valued at $300,000 for tax purposes, you’ll only pay taxes on $260,000.
• In Florida, you can receive up to a $50,000 exemption. If your home is valued at $400,000 for tax purposes and you qualify for the homestead exemption, you’ll only be taxed on $350,000 of market value.
Limitations of the Homestead Exemption
You cannot have a homestead exemption on more than one property. Also, if you move and plan on keeping the home as a rental property, it won’t qualify for the exemption. The homeowner bears the responsibility for notifying the taxing entity and it’s possible that the taxing entity can place a Homestead Tax Lien on your home.
How to File a Homestead Exemption
In many cases, you’ll be sent paperwork from your local taxing entity for the homestead exemption (usually your county assessor). If they do not, you can find the forms for filing for a homestead exemption on your local tax assessor’s website. Information that you can expect to provide includes:
• Name
• Property address
• Identification, such as a driver’s license
• Social Security number
• Car registration (this is to help prove residency)
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States With Homestead Tax Exemptions
Most states offer some form of homestead exemption or credit. Only New Jersey and Pennsylvania do not offer an exemption at all.
Pros and Cons of Homestead Exemption
If you’re able to qualify for the homestead exemption, it will reduce the tax on your property and may help make your home more affordable. This is a huge benefit and makes the pros and cons of the homestead exemption a very short list.
Pros
• Reduces the amount of property taxes paid
Cons
• You may need to file paperwork by a deadline
• Second homes don’t qualify for the homestead exemption
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The Takeaway
The tax break you get with the Homestead Exemption could be substantial. If you qualify for it, make sure that you’re getting it. Be aware of when you need to file paperwork (if at all), and what you need to include with your application to ensure you’re paying the proper property tax rate for those living in it as their primary residence.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
How much is the homestead tax credit in Iowa?
The homestead tax credit for Iowa is equal to the tax levy on the first $4,850 of value.
How much does homestead exemption save in Georgia?
The amount saved in Georgia for the homestead exemption varies by county. The city of Decatur has an exemption amount of 50% while Fulton County and Atlanta offers $30,000 off assessed value on the County taxes, $2,000 off on the school taxes, and, if the resident is in the City of Atlanta, an additional $30,000 exemption for city operations, parks, and schools.
How does the Indiana homestead exemption work?
Homeowners in Indiana can qualify for a deduction of 60% of the property’s assessed value or a maximum of $45,000, whichever is less.
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