Things Every Homeowner Should Know About the Homestead Exemption

Buying a home seems to come with an endless list of new expenses, from mortgage payments and homeowners’ insurance to repairs you probably never thought about. Fortunately, homeownership can come with financial perks, too. One of the most important is the homestead exemption. These exemptions are designed to offer property tax relief, although exactly how they work varies depending on where you live. If you own your home, here are eight things you should know about the homestead exemption.

It Can Lower Your Property Tax Bill

The biggest reason you should know about the homestead exemption is pretty simple: It can save you money. Generally, a homestead exemption typically exempts a portion of a home’s assessed value from taxation. That means your property tax bill will be calculated using a lower taxable value. Since property taxes are imposed locally, how much you can save depends on where you live.

It Usually Only Applies to Your Primary Residence

Just because you own a house doesn’t mean it is your homestead. These exemptions are designed for owner-occupied primary residences only. Investment properties, vacation houses, or second homes don’t qualify. That’s important to know for people who own more than one property. Most states require a homeowner to own and live on the property as their primary residence to qualify for a standard homestead exemption.

The Rules Are Different Everywhere

There isn’t one nationwide homestead exemption with the same rules for everyone. Property taxes tend to be a local tax, and states have their own unique take on exemptions and assessments. Surprisingly, homeowners with similarly priced houses can get very different tax breaks depending on where they live. Check the rules with your local tax assessor.

You May Have to Apply for It

Don’t assume the government will automatically give you any property tax break you’re entitled to. Benefiting from a homestead exemption can require an application with your local taxing authority or assessor. Filing requirements and deadlines also vary. This is something new homeowners need to stay on top of after closing.

It Doesn’t Necessarily Mean That Amount Comes Off Your Tax Bill

The wording relating to homestead exemptions can be confusing. If you hear that your area has a “$50,000 homestead exemption,” that doesn’t mean you’re definitely getting a $50,000 tax break. Typically, an exemption reduces the amount of your home’s value subject to property taxes. Your actual savings depend on the way property is assessed and the tax rates that apply in your state.

Some Homeowners May Qualify for Additional Breaks

The standard homestead exemption may not be the only property tax benefit available. Some states offer other forms of relief for certain groups of people, like older homeowners, people with disabilities, and disabled veterans. It’s worth checking all of the exemptions available where you live.

It Isn’t the Same Thing as an Assessment Cap

Homestead exemptions are only one way states try to give property tax relief. The terminology can get confusing. The exemption removes some value from taxation, while an assessment limit restricts how quickly the taxable assessment of a property can go up. Examples of other programs include tax freezes, deferrals, and “circuit breakers” connected to a homeowner’s income and property tax. These programs all work differently, so it’s best to do your homework.

Buying a New House Can Change Things

A homestead exemption is directly connected to a specific house, so moving can affect your property tax benefits. Rules for a new home can differ substantially by state. Additionally, some jurisdictions have provisions that determine which benefits can follow a homeowner to another house. This is why property taxes are worth investigating before buying. Your local assessor can tell you which exemptions to claim at the new address.

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