Along with the costs of paying a mortgage, homeowners are also responsible for paying other expenses, including insurance and property taxes. Generally, property taxes are assessed based on the value of your home. The more your home is worth, the more you can expect to pay in real estate taxes. Claiming a homestead exemption can result in a lower tax bill; however, not all homeowners may be eligible.
What The Exemption Does
The homestead exemption allows you to save on property taxes by allowing you to exclude a portion of your home's value from assessment. The amount of tax you owe is calculated based on the difference between your home's value and the exemption amount. For example, if your home is valued at $250,000 and your state allows a homestead exemption of $25,000, you would only pay taxes on the remaining $225,000. Depending on the amount of the exemption allowed in your state, you could potentially shave hundreds of dollars off your tax bill each year.
Additional Homestead Exemption Protections
Depending upon the amount of equity you have in your home, homestead exemptions may protect you from the seizure of your property by creditors. If the current amount of equity in your home falls under exemption levels as dictated by legal guidelines, it is illegal for creditors to seize your property in the event of a bankruptcy. It is also possible that homestead exemptions will allow your property to be free from probate proceedings in the event of death.
Who Is Eligible
Generally, the homestead exemption only applies to a principal residence and can only be claimed by the person or persons who are primarily responsible for the mortgage. Some states only apply the homestead exemption to free-standing homes while others, such as Texas, also allow you to claim the exemption for condominiums or mobile homes. Certain states offer the homestead exemption to all homeowners while others restrict it to certain groups, including senior citizens, veterans and individuals who are disabled. The amount of the exemption varies depending on what type of homeowner you are. For example, the standard exemption for a Georgia homeowner is $2,000 while a disabled veteran may qualify for an exemption of up to $60,000.
Claiming the Exemption
The process for claiming the homestead exemption varies from state to state. In some states, such as Illinois, a general exemption of $6,000 may be granted automatically. In other states, residents might be required to apply for the exemption each year. If you have to complete an application for a homestead exemption, you might be asked for proof of ownership of the property. Senior citizens, veterans and disabled applicants might be asked to verify their age, military service or veteran status. The tax assessor's office in the county where the property is located is responsible for reviewing exemption applications.
The homestead exemption only applies to primary residences, which means you can't claim it for a rental property or vacation home. If you own a home that your adult children or other relatives live in, they can only claim a homestead exemption if they have an ownership interest in the property. If your living situation changes and the home is no longer your primary residence, you might be required to notify the county tax assessor's office of the change. In some states, failure to do so is considered fraud and can result in a criminal charge.
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