Owning a home is an American dream, but that dream can come with a hefty price tag. Aside from the actual cost of your home, you'll also need to consider ongoing expenses like maintenance, insurance and property taxes. The U.S. average for property taxes alone is about $2,000 a year.
A homeowners property tax exemption – called a homestead exemption in some locations – can spare you a few dollars when it comes to maintaining your property over the years. Most states have one or more exemptions available that you might qualify for, but the rules can vary considerably from location to location.
A homeowners tax exemption is a portion of your property’s value that you don’t have to pay taxes on. Rules for qualifying can vary considerably depending on where you live.
What Is a Homeowners Exemption?
A homeowners exemption is a dollar amount that you can deduct from your home’s assessed value. It’s not typically shaved dollar for dollar off your tax bill, but it will reduce your tax bill nonetheless because you’ll be paying a percentage of a lesser amount. Your home’s value is multiplied by the applicable tax rate, depending on your state or locality.
Standard exemptions can run from not much at all to pretty significant amounts. The exemption is $7,000 in San Mateo County, California, and it jumps to $10,000 in Cook County, Illinois – where Chicago is located – for the 2017 tax year. Of course, it’s all relative because real estate tends to cost more in these areas as well.
Who Is Exempt From Paying Property Taxes?
So how do you qualify for a homeowners tax exemption? This is where the rules can vary significantly from one state to the next, but a common rule across all states is that you have to use the property as your primary residence. You’re generally out of luck if you rent the place out or otherwise treat it as an investment.
This you-have-to-live-there rule pretty much precludes you from claiming a homeowners exemption for more than one property. And you typically have to be in residence as of a certain date of the tax year for which you’re claiming the exemption. That date is often Jan. 1.
You'll often have some latitude when it comes to the kind of home you own to qualify for an exemption. For example, it can be a single family home, a co-op, a townhome, a condo or even an apartment complex of up to six units in Cook County, Illinois. The rules are similar in New York City.
Some States Have Special Homeowners Exemptions
Many states, counties and municipalities offer exemptions that are more generous to specific segments of the population. These can be in addition to the standard homeowners exemptions that are available, but more often than not they must be claimed instead of the regular exemption. You can usually reapply for the regular exemption if you’re denied for one of the special ones.
Some areas get pretty creative with these special exemptions. For example, some New York counties offer them to volunteer firefighters, while others provide exemptions if you’re widowed. New York City has special exemptions for school-related taxes, clergy members, disabled crime victims and good Samaritans.
Florida will even grant you an exemption if you plant a coconut tree in your yard or you allow a cow to munch away on your grass. But in most states, a few common exemptions are more the norm.
Some exemptions are based on income. For example, if you live in Cook County, Illinois and your total household income is less than $100,000, and if the assessed value of your property increased by more than the maximum amount allowed by the state from one year to the next, you can apply for the Longtime Homeowner Exemption. You must also have lived in the property for at least 10 years, however.
Homeowners Tax Exemptions for Seniors
Another common homeowners tax exemption applies specifically to senior citizens. In most areas, the qualifying age is 65 or older as of the first day of the tax year. This is often an “extra” exemption that can be claimed in addition to the standard one.
And again, the exact rules can vary. Washington State only requires that you’ve reached your 61st birthday to qualify. New Hampshire offers more and more of an exemption the older you get. But you might also have to meet low-income requirements in addition to age requirements in some areas.
The senior exemption can almost eliminate your tax burden entirely in some states, depending on the value of your home. If you happen to live in Alaska and you’ve passed your 65th birthday, the first $150,000 of your home’s value is tax-free. Of course, you’ll probably need that extra money for your heating bill.
Homeowners Tax Exemptions for Veterans
Every single state offers some kind of property relief for disabled veterans. You’d be hard pressed to find a single location in the U.S. that doesn’t, and many, like Michigan, will waive property taxes entirely for these individuals when they’re 100 percent disabled.
California is pretty generous, too. It exempts the first $196,262 of property value with some income restrictions when a veteran is 100 percent disabled. Other areas, like the District of Columbia, require that a vet be at least 65 years old or disabled to qualify.
Oregon’s exemption for disabled veterans was $21,386 or $25,655 shaved off a home’s assessed value as of 2016, and Indiana’s exemption is also in that neighborhood. In fact, exemptions of this approximate dollar amount are the norm for disabled vets in many states. Arizona is by far the stingiest, offering only $3,000 on homes with assessed values of not more than $10,000.
Some areas provide across-the-board exemptions for all veterans. Pennsylvania is one of these generous states. And even those that don’t technically offer homeowners exemptions for all veterans provide tax credits or other sorts of deductions to make property taxes more reasonable for these individuals.
Some states impose quite a few rules for this type of exemption, however. You might have to establish that you were honorably discharged and you might also have to meet income requirements. The degree of your disability can matter as well. Some locations reserve this exemption for those who have just returned home from an armed conflict.
Exemptions for the Disabled
Many states also offer special exemptions to homeowners who suffer from disabilities regardless of whether they’ve ever served in the armed forces. You’ll have to be able to prove your disability, typically by showing that you’re eligible for, or are receiving, Social Security disability benefits.
About Those Home Improvements You Made…
Improving your home results in increased assessed value and this means paying more in property taxes. Maybe your property assessed at $275,000 last year, and then you added an attached apartment for your recently widowed mother-in-law. Now your property assesses at $350,000. Will you be paying your property tax rate on $75,000 more?
Not if you live in Illinois, at least not right away. The state offers a Home Improvement Exemption that lets you make up to $75,000 in improvements without your home’s assessed value increasing for a “safe” period of four years as of 2017. But the change has to qualify as an “improvement.” Normal maintenance doesn’t count.
In fact, several states will let you upgrade your home without increasing its value for a while, particularly if you do so to accommodate a disability, although not all states set this requirement. In fact, Smithtown, New York will totally exempt that apartment addition if you add it to accommodate a grandparent.
Bismarck, North Dakota will give you a five-year grace period if your home is more than 25 years old and while there’s no dollar limit here, it’s only three years in areas of Washington State.
How to Apply for a Homeowners Tax Exemption
Homeowners tax exemptions can vary so much that your first step should be to contact the property tax authority for your area to find out what’s available in your location. Many special exemptions and the rules for qualifying can be unique to your specific area – they’re not necessarily statewide – so you’ll probably have to do a little research.
If you do think you qualify, your next step is typically to submit an application to the taxing authority. You can often do this for free, but in some areas, there might be a small fee. You must often apply by the first day of the tax year, but you might have a few more months, depending on where you live. You’ll also need some identifying information regarding your property, which can normally be found on your deed or through the tax assessor.
Some areas will automatically renew your exemption year after year when you apply for and are approved for an exemption the first time, assuming you haven’t sold your property. Others require that certain special exemptions, such as the ones for senior citizens and disabled individuals, must be renewed annually. Still, others require that all exemptions be renewed annually. Property tax waivers for veterans can be either permanent or annual, depending on your location.
Are There Any States Without Property Taxes?
You might be tempted to simply pack up and move to a location where there are no property taxes at all…but you’re probably not going to find one. All states impose property taxes at some level, whether they’re state, county or local.
Per capita, taxes are typically highest in the Northeast, although they’re pretty steep in Wyoming as well. The Tax Foundation ranked New Jersey as the most expensive state for per capita property taxes as of 2015, the most recent year for which comprehensive data is available. New Jersey is followed by New Hampshire, Connecticut, New York and Vermont. The District of Columbia wasn’t ranked, but it would have been the most expensive location had it been included, nudging New Jersey into second place.
At the other end of the spectrum, states with the lowest per capita property taxes are pretty much scattered all over the country. By far, the most affordable locations are in Alabama. Oklahoma is pretty property tax-friendly as well, as are Arkansas, New Mexico, Kentucky and – perhaps surprisingly – Delaware, even though it’s right across the river from New Jersey.
Of course, you could always just buy a home in Florida and plant a palm tree or adopt a cow. Florida ranks pretty much in the middle of all states for property taxes.
- San Mateo County Assessor-County Clerk: Homeowners’ Exemption
- NewCastle Home Loans: Homeowner Exemptions
- Houselogic: Property Tax Exemptions – Do You Qualify?
- SmartAsset: Do You Qualify for Property Tax Exemptions?
- Veterans United Network: Full List of Property Tax Exemptions by State
- Official Website of the City of New York: Property Tax Exemptions
- Tax Foundation: Average Per Capita Property Taxes – How Does Your State Compare?