Homestead exemption

This article is part of a series on
Taxation in the United States of America
Federal taxation Alternative minimum tax Capital gains tax Corporate tax Estate tax Excise tax Gift tax Income tax Payroll tax Internal Revenue Service (IRS) Internal Revenue Code (IRC) IRS tax forms Revenue by state History Constitutional authority Taxpayer standing Court Protest Evasion
State and local taxation State income tax Property tax Sales tax Use tax Land value tax State tax levels
Federal tax reform Automated payment transaction tax 9–9–9 Competitive Tax Plan Efficient Taxation of Income FairTax Flat tax Hall–Rabushka flat tax Kemp Commission Taxpayer Choice Act USA Tax Value added tax
United States portal

The homestead exemption is a legal regime designed to protect the value of the homes of residents from property taxes, creditors, and circumstances arising from the death of the homeowner spouse. Laws are found in state statutes or constitutional provisions which exist in many states in the United States. The homestead exemption in certain southern states has its legal origins in colonial Spanish exemption laws. Exemption laws in other states were enacted in response to the effects of economic depressions in the 19th century.

Features

Homestead exemption laws typically have four primary features:

1. They prevent the forced sale of a home to meet the demands of creditors (however, in most cases homestead exemptions do not apply to forced sales to satisfy mortgages, mechanics liens, or sales to pay property taxes);
2. They provide the surviving spouse with shelter;
3. They provide an exemption from property taxes which can be applied to a home.
4. Allows a tax-exempt homeowner to vote on property tax increases to homeowners over the threshold via bond or millage requests.

For purposes of these statutes, a homestead is the one primary residence of a person, and no other exemption can be claimed on any other property anywhere, even outside the boundaries of the jurisdiction where the exemption is claimed.

In some states, homestead protection is automatic. In many states, however, homeowner will not receive the protections of the law until they file a claim for homestead exemption with the state. Furthermore, the protection can be lost if the homeowner abandons the protected property by taking up primary residence elsewhere.

Immunity from forced sale

Different jurisdictions provide different degrees of protection under homestead exemption laws. Some only protect property up to a certain value, while others are limited by acreage limitations. If homesteads exceeds these limits creditors may still force the sale while the homesteader may keep a certain amount of the proceeds of the sale.

California protects up to $75,000 for single people, $100,000 for married couples, and $175,000 for people over 65 or legally disabled. In California, SB 308 was introduced in early 2015. It initially proposed a $700,000 homestead exemption regardless of age or marital status. It has recently been amended down to $300,000.

Texas, Florida, Iowa, South Dakota, Kansas, and Oklahoma have some of the broadest homestead protections in the US, in terms of the value of property that can be protected.

Texas's homestead exemption has no dollar value limit and has a 10 acres (4.0 hectares) exemption limit for homesteads inside of a municipality (urban homestead) and 100 acres (40 hectares) for those outside of a municipality (rural homestead). The rural acre allotment is doubled for a family: 200 acres (81 hectares) can be shielded from creditors in Texas for a rural homestead.^[1]

Both the Kansas and Oklahoma exemptions protect 160 acres (65 hectares) of land of any value outside of a municipality's corporate limits and 1 acre (0.40 hectares) of land of any value within a municipality's corporate limits. Most homestead exemptions cover the land including fixtures and improvements to it, such as buildings, timber, and landscaping.

New Mexico has a $60,000 exemption.^[2] Alaska has a $54,000 exemption.

Colorado has a $60,000 exemption, or $90,000 for people who are over 60 or disabled.^[3]

In the majority of states, the real dollar value of "protection" provided by these laws has diminished as exemption dollar amounts are seldom adjusted for inflation. The protective intent of such laws, with some notable exceptions stated above, has been eroded in most states.

Property tax exemption

A homestead exemption is most often only on a fixed monetary amount, such as the first $50,000 of the assessed value. The remainder is taxed at the normal rate. In that case, a home valued at $150,000 would then only be taxed on $100,000; a home valued at $75,000 would be taxed only on $25,000.

The exemption is generally intended to make the property tax a progressive tax. In some places, the exemption is paid for with a local or state (or equivalent unit) sales tax.

Examples

• California exempts the first $7,000 of residential homestead from property taxes.
• Colorado allows a 50% deduction for up to the first $200,000 (equivalent to a $100,000 exemption) for seniors (over age 65) who have lived in their property for ten consecutive years.
• Georgia allows a 1% HEST only in a few counties.
• Florida's homestead exemption allows a $50,000 exemption for all taxes for the value of property assessed a property tax, plus a $50,000 exemption on all taxes except the school millage. Furthermore, increases in assessment may not exceed the lower of 3% of the assessed value from the prior year or the percentage change in the CPI.^[4]
• Louisiana exempts the first $75,000 of residential homestead from local property taxes.^[5]
• Michigan exempts the homeowner from paying the operating millage of local school districts.
• Mississippi exemption from all ad valorem taxes assessed to property; this is limited to the first $7,500 of the assessed value or $300 of the actual exempted tax dollars.^[6]
• New York's School Tax Relief (STAR) program exempts the first $30,000 of a primary home's assessed value from school district taxes; the exemption is limited to owners with incomes under $500,000. Additional exemptions are available for people over 65 with a limited income. The STAR program applies only to school taxes; no homestead exemption exists for taxes levied by other municipal entities. New York prevents a New York resident claiming this exemption if the New York resident owns property in another state and claims a similar exemption in that other state.
• Oklahoma allows a $1000 deduction of the assessed valuation, about $75 to $125 of savings per year, if owners file for homestead exemption with the local county clerk.
• Rhode Island exempts the first 20% of the home value from property taxes.
• Texas allows a deduction, with additional exemptions are available for county taxes, people over 65 and people who are disabled.^[7]
• Kentucky, for 2013 and 2014, the exemption has been set at $36,000. Once it is approved, homeowners who are 65 or older do not need to reapply for the homestead exemption each year.^[8]

Links

• Rules in various states by Law Check

Notes

References

• Combs, Susan. Texas Property Tax Code 2006 Edition Retrieved 22 May 2007.

External links

•  Mereness, Newton Dennison (1911). "Homestead and Exemption Laws". Encyclopædia Britannica (11th ed.).