If you own a home, you should be taking advantage of the homestead exemption. This ‘discount,’ lowers your property value as it pertains to your property taxes. In other words, you can lower your tax liability by claiming the exemption.
The amount of the exemption, which varies by state/county, is deducted from the assessed value, not the market value of your home. This helps to shield a portion of your home’s assessed value from property taxes. This doesn’t mean you won’t pay any property taxes, but it can lower your liability.
Qualifying for the Homestead Exemption
In order to take advantage of the homestead exemption offered, the home must be your primary residence. In other words, you must live in the home full-time and for a majority of the year. This rules out any second homes, vacation homes, or rental homes. You will have to pay taxes on the fully assessed values for these homes. The exemption is meant to help homeowners in the home they live in daily.
Benefits Other Than Lower Taxes
Lower taxes are probably the largest and most common benefit of the homestead exemption. If you can exempt the first $25,000 of your property’s assessed value, you could save a significant amount of money on your property taxes.
But, there are a few other benefits, you may not realize:
- Protection from creditors – If you are forced to file bankruptcy, creditors cannot force you to sell your home to pay them off. The amount of the exemption for this protection will vary by state.
- Protection for widows – Oftentimes when a spouse dies, the surviving spouse is forced to sell the home to cover the outstanding bills. The homestead exemption helps to prevent that from occurring, allowing widows to remain in their residence while finding other ways to settle the bills.
Taking Advantage of the Homestead Exemption
Make sure you understand the policy regarding your state’s homestead exemption. Each state and even different counties within the state have different requirements. Find out if you need to apply for the exemption (and reapply). Also find out the maximum amount allowed. This is the maximum amount of protection.
For example, if the exemption is for $100,000, but you own your $200,000 home free and clear, that does leave $100,000 available for creditors to come after if you are behind. This may mean you could still be forced to sell the home in certain situations.
Know your rights and how you can protect them in the face of financial disaster. Talk with your tax advisor about the homestead exemption in your area to see if you qualify. It can help keep more money in your pocket during tax time and protect you in the face of financial disaster.Click to See the Latest Mortgage Rates»