Homestead exemption: Definition, explanation, and how to qualify

If your home is your primary residence, you might be able to reduce your property taxes with something called the homestead exemption. In some states, it can even protect your home during rough times, helping to guard your equity from being seized during bankruptcy.

This guide will walk you through the details of the homestead exemption, how to determine whether you qualify, and how to apply for it.

Key takeaways

• A homestead exemption is a legal way to reduce your property taxes by lowering your home’s taxable value.
• In some states, it can also protect your home’s equity from creditors or bankruptcy.
• The homestead exemption applies to primary residences, not vacation or investment properties.
• Applying is easy, but it’s not automatic, and requirements can change. 

What is a homestead exemption?

Simply put, a homestead exemption is a legal provision that helps homeowners reduce their property taxes and, in some cases, protect their home equity from creditors during a financial hardship.

The homestead exemption works by reducing your home’s assessed value. Because property taxes are based on this, it lowers your tax burden. Say your home is worth $500,000 and your state offers a $50,000 homestead exemption. Your property taxes are then based on a value of $450,000.

In some states, the homestead act also acts as a shield, protecting a portion of your home’s equity from financial trouble, such as a lawsuit or bankruptcy. Rules and benefits vary greatly from state to state, but the core idea of the exemption is consistent: to make homeownership more affordable and more secure.

Who qualifies for a homestead exemption?

While the amount of the exemption and the qualification rules vary by state, there are some general rules that are universal:

• You must own the home. Renters, unfortunately, don’t qualify for the homestead exemption.
• It must be your primary residence. Generally, you must live in your home and declare it as your primary residence. In other words, your vacation home or rental property is not eligible.
• You usually need to apply within a set time frame. Typically, you have a window of opportunity to apply for the homestead exemption. Often, it’s within the year you purchase the home.
• Some states allow doubling. In some states, if you are a married couple living in the home, it allows you to double the exemption amount. In others, there is only one amount, or there is a set amount for couples.
• There may be special exemptions: Some states offer larger tax exemptions for certain groups such as: Seniors (65+), veterans or disabled veterans, people with disabilities, and low-income homeowners

How does a homestead exemption reduce property taxes?

Think of the homestead exemption as one of many tax deductions for homeowners. It works by reducing the amount that is used to calculate your property taxes, which lowers your home’s assessed value. In this way, you enjoy a certain level of property tax relief. Here’s an example:

Let’s say your home is worth $350,000 and your state offers a $50,000 homestead exemption. This means that for property tax purposes, your home now has an assessed value of $300,000. Now let’s assume your local property tax rate is 1.5%. Lowering your assessed value saves you $750 in property taxes every year. Here’s the math:

• $350,000 x 1.5% = $5,250 in property taxes
• $300,000 x 1.5% = $4,500 in property taxes
• $5,250 - $4,500 = $750 in savings

Many states value their homestead exemptions in dollar amounts as in the above example. Others offer them as a percentage of your home’s assessed value, such as 20% off the assessed value, for example). Either way, the result is a lower property tax bill for you.

What protections does a homestead exemption offer against creditors or bankruptcy?

If you file for Chapter 7 bankruptcy, the homestead exemption may help you protect the equity in your home, meaning you can find relief from unsecured debts like credit card debt and medical bills without losing your house. How much equity you can protect depends on where you live. In some states, the exemption protects the entire home’s value. In others, the protection is not offered at all. If your equity exceeds the protection limits, there may still be other options, such as Chapter 13 bankruptcy. Check the laws in your state and consult an expert for more detailed information.

Here are some real-world examples of how it could protect your home:

• Job loss: If you lose your job and face creditor lawsuits because of falling behind on payments, your state’s homestead exemption could stop creditors from forcing a sale of your home.
• Medical debt: If you have unpaid medical debt, the exemption could protect your home’s equity from liens attempted by collection companies.
• Divorce or legal judgments: The exemption could help you hold onto your home even while other assets are at risk.

Here’s a look at how much states can vary in their protections:

Note that these amounts change often due to many factors, so it’s important to check with a professional before planning.

Do all states offer homestead exemptions?

The short answer is many, but not all, do. States also vary in whether the exemption is applicable only for taxes, equity protection, or both. The values change often, and they vary from state to state, so it’s important to check with your county’s assessor’s office, state tax authority, or a professional before making any decisions based on the homestead exemption.

Here’s what frequently varies state-to-state:

• Scope of protection: Some states offer only property tax relief; others also offer equity protection against creditors.
• Who qualifies: Most states have a primary residence requirement, but some also have other limitations, such as age, type of land, and other rules.
• Value of the exemption: The exemption can run from none or a few thousand dollars to the entire value of your home.

How to apply for a homestead exemption

Applying for a homestead exemption is straightforward. Here’s a list of typical steps you’ll need to follow:

1. Get the application. This can usually be found at your local county tax assessor’s office or their website. Some states also allow online applications.
2. Gather your documents. This usually includes:
   • Proof of ownership (like a deed or mortgage statement)
   • Proof of residency (a utility bill, driver’s license, or other official document showing your address should work)
   • Photo ID (driver’s license or passport)
   • Proof of any special circumstances (veteran, disabled, over 65, and others)
3. Submit by the deadline. Deadlines vary by state. But don’t miss it since you could lose a full year of savings if you do.
4. Reapply if needed. In some states, you’ll need to reapply every year. Others renew automatically once you’re in their system.
5. Confirm your exemption. When you get your property tax bill, check it to make sure the proper exemption amount has been deducted. If not, contact your tax office right away.

FAQ about the homestead tax exemption  

Those with questions about the homestead property tax exemption may find their answer below.

How much is the homestead exemption?

The size of your homestead tax exemption varies by state. Some states offer a flat exemption, such as a $40,000 decrease in your home’s assessed value. Others reduce your home’s assessed value by a percentage. Check with your county assessor’s office to learn how valuable your state’s property tax exemption might be.

Can I keep my homestead exemption if I move away from my home temporarily?

This, again, will depend on your state. You might, though, retain your homestead exemption if you move away temporarily if you don’t establish a permanent residence in another state.

When do I submit the homestead exemption application?

When you apply for a homestead exemption will vary by state. To make sure you don’t miss out, check with your county assessor’s office. If you are buying a home, you can also ask your real estate agent or mortgage loan officer. In some states, you only apply for the exemption once before it automatically renews each year.

Can I apply for a homestead exemption for a second home?

Homestead exemptions are only available for primary residences. This means that you can’t get a property tax reduction on a second home that serves as an investment or vacation property. That doesn’t mean that buying a second home isn’t a smart decision. Just don’t expect a property tax deduction on a home that isn’t your primary residence.

The bottom line: Homestead exemptions may offer protection and savings

If your state offers a homestead exemption, it’s well worth applying for it. It can provide significant property tax savings and protect your equity from creditors or bankruptcy. Research your state’s rules for more information. It’s best to consult a mortgage or tax professional if you’re unsure of your eligibility.