Homestead Exemption, Explained
Melissa Brock4-minute read
June 08, 2023
When you face financial hardship such as a debilitating illness, loss of your home or the death of your spouse, a homestead tax exemption can offer a major benefit.
Keep reading to find out whether a homestead exemption is available to you in any one of these situations or another setback you might encounter.
What Is A Homestead Exemption?
A homestead exemption reduces the taxable value of a person's primary residence, effectively lowering the amount they'll owe in property taxes. In most states, it can protect homeowners from creditors in the event of bankruptcy or the death of a spouse. It can also help you avoid bankruptcy – after April 1, 2019, federal bankruptcy law shields a home from sale if your home equity does not exceed $25,150.
You file a homestead exemption with your county tax assessor to reduce the taxes you pay on your property.
Exemption From Property Taxes
Before getting into exemptions, here’s a quick review of property taxes: Your local taxing authority assesses your home to calculate your property tax rate, and you pay your property taxes based on that assessed value. Property taxes go toward local projects, services and amenities, such as fire, police and education.
Homeowners can lower their property taxes – or receive a property tax exemption – with a homestead exemption that is based on your unique situation. Some states offer larger homestead exemptions for joint owners and married couples.
Protection From Creditors
Homestead exemption laws prevent the sale of your home by creditors to satisfy any debts you might owe.
Here's an example:
Say you owe money to a car dealership for an auto loan. The auto lender cannot force your home sale if your home equity is spared under your state exemption limit.
Protection For Surviving Spouse
The exemption can help a surviving spouse if a homeowner passes away. Some states have laws that protect surviving spouses or partners from creditors, which can help them stay in their homes once their income has gone down due to the death of their partner.
How Does The Homestead Exemption Work?
Homestead exemption qualifications vary by state. You can learn more about how your locality handles homestead exemptions by checking with your county tax assessor.
Eligibility may depend on the following:
- Income level
- Property value
- Veteran status
Your county tax assessor will let you know the process, which may include filling out an application and including documentation that proves your eligibility, such as your driver's license, military discharge papers and tax return information.
Your state might automatically offer a homestead exemption in two forms, a flat-dollar homestead exemption or a percentage exemption:
- Flat-dollar tax exemption: In this type of tax exemption, the amount you owe is lowered by a specific number. For example, if you have a home valued at $200,000 and your state allows a homestead exemption of $30,000, you'd pay taxes on $170,000.
- Percentage exemption: In a percentage exemption, your home's taxable value is reduced by a percentage. If your home is worth $200,000 and the homestead exemption is 20%, you'd pay taxes on $160,000. High-value properties typically benefit more from this type of exemption.
Note that a homestead exemption does not affect your federal or state tax returns.
Which States Offer Homestead Exemptions?
Do you live in a state that offers a homestead exemption? The following states have unlimited homestead exemptions, which means you could protect property of any value from creditors (though there may be acreage and length of ownership limits):
- District of Columbia
- South Dakota
The following states do not offer homestead exemptions at all:
- New Jersey
All other states offer homestead exemptions of various amounts and may depend on whether you are a married couple or joint owner of a home.
Who Qualifies For The Homestead Exemption?
You will need to fulfill specific requirements to qualify for a homestead exemption, which could include one or more of the following:
- Owning a home that is your primary residence, not a second home or investment property
- Earning a low income
- Qualifying as a senior citizen, veteran or disabled person
- Having U.S. citizen or permanent resident status
- Being a resident of the state in which you apply for an exemption
You also cannot receive any tax exemption on any other property in the U.S. Check on the requirements for your state.
How Do You Apply For A Homestead Tax Exemption?
When applying for this exemption, you may need to gather a few documents, including the following, depending on your state:
- Personal identification, such as a driver's license
- Tax returns
- Ownership verification, such as your deed to the property (a warranty deed or quit-claim deed)
- Social Security numbers (through a valid Social Security card or Medicare card)
- Military identification card
- Resident alien card, if you're not a U.S. citizen
- Vehicle registration card, voter registration card or recorded declaration of domicile
- List of all other owned properties nationwide
- Verification of total household income (through a copy of your federal tax return or wage-earning statements) for each member of your household
- VA letter proving combat-related disability
You can fill out a homestead exemption application on your county tax commissioner's website or apply in person at your city's department of revenue or tax office. If you move from another state, you may need a document from the county assessor stating that you do not have tax exemptions in the state from which you moved.
Homestead Exemption FAQs
Do you have questions beyond, "What is a homestead exemption?" If you're wondering what it might mean for you, look at our frequently asked questions.
How much is the homestead exemption?
The amount of the homestead exemption differs in each state. For example, one state might offer taxpayers a $50,000 homestead exemption, while another might offer a $60,000 homestead exemption. Check with your local tax office for the details on homestead exemptions in your state.
Can I keep my homestead exemption if I move away from my home temporarily?
You can keep your homestead exemption if you temporarily move away from your home. In this case, you may not establish a principal residence in another state and must plan to return to the home. For example, if you spend winter in another state but return to your permanent residence in the spring, your homestead exemption is still applicable.
When do I submit the homestead exemption application?
Every state has a different requirement for the homestead exemption application – for example, it might be March 1 in one state or July 1 in another. Check with your county assessor for more information.
Can I apply for a homestead exemption for a second home?
No, a homestead exemption only applies to primary residences. For example, some states require you own and occupy a property by a certain date of each tax year, declare residency there and occupy the property for at least 6 months during the year.
The Bottom Line
A homestead exemption can protect you from property taxes up to a certain point and protects you from creditors by shielding a portion of your property's assessed value.
As a property owner, you must live in a primary residence and may have to meet other criteria, such as low income, disability or veteran status. Gather your application materials and apply online on your county tax commissioner's website or in person to qualify.
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