Homestead tax exemption: what is it and how does it work?

Summary 

What is a homestead tax exemption on property taxes? 

A homestead tax exemption is a legal provision designed to reduce property taxes on your primary residence, the place where you live and intend to remain indefinitely.  

This exemption lowers the taxable value of your home, either through a fixed reduction or a percentage decrease, resulting in a smaller annual property tax bill.  

Eligibility requirements for this valuable tax break vary from state to state, but generally, you must own and occupy the home as your primary dwelling to qualify. 

How do property taxes work? 

Property taxes are local taxes based on your property's assessed value at a percentage of its market value.  

The tax rate, set by local governments, is often expressed in mills. This figure represents the amount per $1,000 of the assessed value of the property, which is used to calculate the amount of property tax. 

To calculate your tax bill, you will multiply your assessed value by the tax rate.  

How do homestead tax exemptions work? 

Homestead exemptions lower property taxes on primary residences by reducing the home's taxable value, either by a set amount or percentage.  

For example, a $50,000 exemption on a $200,000 home means taxes are calculated on $150,000, potentially saving homeowners vast sums annually.  

Who is eligible for homestead tax exemption? 

Generally, you must own and occupy the house as your primary residence and be a legal resident of the state.  

However, eligibility for homestead tax exemptions varies by state.  

Some states offer additional exemptions or increased exemption amounts for senior citizens, typically those over 65 years old.   

Certain states provide exemptions or additional benefits for individuals with disabilities.  

Veterans may also be eligible for special homestead exemptions or additional tax relief.  

A few states may have income limits to qualify.  

Which states have the homestead tax exemption? 

As mentioned, homestead tax exemptions vary by state.  

For example, Florida offers a standard homestead exemption of up to $50,000 for eligible homeowners, with additional exemptions for seniors, veterans with disabilities, and surviving spouses of veterans or first responders killed in the line of duty.  

Texas provides a general residence homestead exemption of at least $25,000, with additional exemptions for those over 65 or disabled. School districts in Texas may also offer their own exemptions. 

While not a traditional homestead exemption, California offers a homeowner's property tax exemption of $7,000. 

It's important to note that not all states offer homestead exemption tax.  

Some states have alternative property tax relief programs, such as credits, rebates, or circuit breaker programs.  

It's crucial to check with your state's Department of Revenue or local assessor's office to determine your eligibility and learn about the available programs in your area.  

Which states do not have the homestead tax exemption? 

Not all states offer homestead exemption taxes, and the specific terms of the exemption vary widely among those that do.  

However, most states offer some form of property tax relief available, such as a homestead exemption, credit, or other program. 

States without homestead tax exemptions are as follows: 

Even in states with homestead exemption taxes, eligibility requirements and exemption amounts can vary significantly.  

For detailed information on available programs and how to apply, consult your state's Department of Revenue or local assessor's office. 

How do you apply for the homestead tax exemption? 

Applying for a homestead tax exemption generally involves confirming eligibility, gathering documentation such as proof of residency and ownership, and submitting a completed application to the county tax assessor's office.  

Specific requirements and deadlines vary by state, but it’s vital to fill out the correct homestead tax exemption form to ensure you benefit from this tax break.  

Some states have annual application deadlines, while others grant the exemption automatically upon meeting eligibility criteria. The type of documentation required as proof may also differ. Additionally, some states mandate annual renewal of the exemption.  

To ensure a successful application, thoroughly research your state's specific requirements and deadlines by consulting the IRS website or contacting your local tax assessor's office.  

What are some alternatives to the homestead tax exemption to lower your bills? 

If you don't qualify for homestead exemption taxes or live in a state that doesn't offer it, you can still try to lower your property tax bill.  

Some options include: 

Get expert financial advice 

Homestead tax exemptions reduce homeowners' property taxes and sometimes offer additional benefits for seniors, veterans, and people with disabilities.  

While not universal, understanding the specifics of these exemptions and exploring alternative tax relief options can lead to substantial financial relief for eligible homeowners. 

Unbiased can match you with an SEC-regulated financial advisor who can provide expert advice tailored to your unique situation and financial needs.