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What Is a Homestead Exemption and How Does It Work?

The average homeowner pays nearly $3,400 in property taxes, according to real estate research firm ATTOM Data Solutions.

While you can’t avoid property taxes as a homeowner, there are ways to decrease the amount you owe. One way is taking advantage of a homestead exemption.

What is a homestead exemption?

A homestead exemption is a tax break that only applies to owner-occupied homes and is typically set at a fixed dollar amount. Generally, cities and counties set property taxes as a certain amount per $100 of value of a person’s property. If your home is worth $200,000 and the tax rate is $1 per $100 valuation, you’ll pay $2,000 in property taxes.

A homestead exemption reduces the value you are taxed on.

So, if your home has a $200,000 value and you are granted a $50,000 homestead exemption, your property taxes would be based on a reduced home value of $150,000.

Types of homestead exemptions

More than 40 states offer some type of homestead exemption, according to the Institute on Taxation and Economic Policy, a nonpartisan, nonprofit tax policy organization. Some are open to anyone who lives in the home as their primary residence, while others are only for people who fall within certain categories, like citizens, veterans with disabilities or their surviving spouses, and the surviving spouses of firefighters, police officers or U.S. military members.

These exemptions generally allow homeowners to reduce the value of their home that is subject to city, county or school taxes.

Waller County, Texas, offers a $25,000 residential homestead exemption for all eligible homeowners on school district taxes, and a 20% exemption for county taxes. There are also exemptions available for senior homeowners.

Fulton County, Ga., offers a $30,000 basic exemption for all eligible homeowners; a $2,000 exemption on the county’s school system taxes; and other exemptions that vary based on the homeowner’s city of residence. The county also offers a $50,000 exemption for seniors aged 65 and older, plus exemptions for homeowners who are veterans with disabilities or meet other eligibility requirements.

How to get a homestead exemption

Each state and county has their own process, but homeowners should expect to apply for a homestead exemption through their local tax authority, such as the county tax commissioner.

For example, homeowners in the state of Georgia must submit their application by April 1 in order to be considered for a homestead exemption during the current year. Homeowners who apply after the deadline won’t receive an exemption until the following year. Additionally, homeowners must have owned and lived in the home on Jan. 1 of the year they’re applying for the exemption.

Check with your county tax commissioner about whether your homestead exemption can be automatically renewed on an annual basis after your initial application.

Once you sell your home and buy a new property elsewhere — with the intention of making it your primary residence — you’ll need to have the homestead exemption removed from your former primary residence and apply for a new exemption with the tax authority that governs the municipality you’re moving to.

Application documents

You may need to supply the following documents as part of your application:

  • Driver’s license
  • Vehicle registration
  • Voter registration
  • Social Security number
  • Recorded deed
  • Tax returns

Additional documents may be required, depending on the exemption you’re applying for so be sure to check with your local tax authority.

Other ways to lower your tax bill

If your state doesn’t offer homestead exemptions or if you’re just looking for additional ways to cut down on your taxes, below are a handful of ways to reduce your tax bill.

  • Appeal your tax assessment. Between 30-60% of the taxable properties in the U.S. are overvalued, according to the nonpartisan National Taxpayers Union Foundation. If you don’t agree with the numbers shared with you, file an appeal with your local tax authority.
  • Deduct your local property taxes. Federal tax law permits homeowners to deduct up to $10,000 in state and local taxes, which includes property taxes.
  • Deduct your mortgage interest payments. You’re also allowed to deduct interest paid on up to $750,000 in home loans, including the mortgage on your primary residence and the home equity loan or a line of credit used to buy, build or improve your primary residence or a second home.

The bottom line

Property taxes can be costly for homeowners, but they’re one of the necessary evils that come along with owning a home. One way to lessen your tax burden is to reach out to your tax commissioner’s office to determine if they offer homestead exemptions and learn the steps you should take to qualify and apply.

If you’re granted an exemption, you’ll be able to rest easier knowing you took the time to reduce your tax bill for years to come.

 

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