Everyone wants to save money on their property taxes, and a homeowners’ exemption does just that for homeowners. Depending on the state, it’s also known as a homestead exemption. This is an ongoing exemption for as long as you own and dwell on the property, not a one-time exemption.
Regressive Property Taxes
Lawmakers know tax breaks are popular with the public, for obvious reasons. The property tax is inherently regressive, as those with lower incomes pay more of their income in such taxes than their well-to-do counterparts. Property taxes are not based on income, but on the dwelling’s value. Homeowner exemptions were devised to provide property tax breaks progressively, in the sense that the biggest cuts as a proportion of income go to those with middle-class incomes rather than the wealthy.
While the way a homeowners’ exemption works may vary by state, it is always used for a person’s primary residence. You can’t declare a homestead exemption on a vacation house or investment property. However, you don’t have to own a single family home to qualify. In most jurisdictions; condos, townhouses, mobile homes, houseboats, individual units of multi-family dwellings and co-ops are eligible, as long as they are the owner’s primary home. Homeowners’ exemptions are not available to renters or owners of unoccupied homes. The home must be titled in the name of the resident, not in the name of a business entity, such as an LLC or corporation.
If you don’t have 100-percent ownership of the home, not counting a property owned jointly by spouses, you may still prove eligible for a homeowner’s exemption. If you own half of the house and live there, you might receive half of the exemption amount on your half of the property. For example, if the property is assessed at $250,000 and there is a $25,000 exemption in your state, you may receive a $12,500 exemption. Check with your local assessor to determine the regulations in your state on partial ownership.
How the Homeowners’ Exemption Works
The homeowners’ exemption doesn’t cut your property taxes directly. Instead, it exempts a certain amount of the property’s assessed value, so you pay taxes based on that lower rate, rather than receive any type of rebate. For example, if your house is assessed at $200,000 and the exemption is 25 percent, you will pay property taxes as if your house was assessed at $150,000.
Applying for the Homeowner Exemption
The application process for the homeowners’ exemption varies by state. In most cases, the application is free, but in some states, a small fee applies. If you live in Illinois’ Cook County, the property tax overview lets you view exemptions for which you may prove eligible. You can’t apply for the exemption unless you have owned and lived in the property in question as of January 1 of the current tax year. After that, however, the Cook County assessor’s office automatically renews the homeowner exemption until you sell the property or move elsewhere, whichever comes first. You must notify the assessor if your situation changes. That's also the case if the title on the home changes. For example, if you owned your house with your spouse and your spouse died, or you went through a divorce and now own the house individually, you must file a new homestead exemption application. Once you file your original application, you won’t see the exemption until you receive the second installment of that year’s tax bill.
In some states, very little documentation is necessary to receive the homestead exemption. If your name is on the deed, you may have to fill out a form and submit it to the county assessor’s office. In other states, such as Florida, the application is a little more complicated. Possibly because Florida has so many residents with second homes in other states, you must submit a copy of your Florida driver’s license with your homestead exemption application. If you don’t have a driver’s license, you must submit a valid Florida ID card. You’ll also need other documentary proof, which may include your voter registration card, motor vehicle registration or a formal “declaration of domicile” recorded in the county records. You must also provide proof that any prior Florida residence was sold, or if you still own it, proof that you have canceled that homestead exemption. You’ll also need to provide two of the following forms: Federal income tax return listing your residence, a utility statement for the residence, a W-2 or other type of employment verification with your address, proof of location where your children are registered for school or bank account information with your address listed.
Check State Laws
If you’re planning to move to another state, you may want to check out their homestead exemption laws beforehand. In some states, the homeowners’ exemption laws may protect their primary residence if the owner files for bankruptcy. In other states, there is no such protection. In a few states, married couples owning a home can double their homestead exemption. Some states limit the amount of a home’s value that qualifies for the exemption, while others have no limits. Senior citizens may qualify for higher home exemptions in certain states. Some states limit exemption eligibility by income or give them only to those over age 65. You’re out of luck if you live in Pennsylvania or New Jersey, as neither state has a homeowners’ exemption program. The latter has one of the highest property tax rates in the nation, and little relief is offered to homeowners.
In addition to state law, check your county and even municipal laws for potentially added exemptions. You could discover a property tax exemption for which you qualify that isn’t offered statewide.
Some circumstances may jeopardize your homestead exemption, depending on the state. If you have to move out of your home and enter a convalescent or rehabilitation facility, whether or not you lose the exemption depends on the amount of time you are away and whether you plan to return. Generally, if a person is at such a facility for one year or more, the homestead exemption will not apply.
Senior Citizen and Disabled Veterans Exemptions
If you are a senior citizen, disabled veteran or both, your state may offer other property tax exemptions. In some states, you may qualify for more than one homestead exemption based on your status. In other states, you are limited to only one exemption. In California, you would qualify for only one exemption, but the disabled veterans exemption is worth more than the homeowners’ exemption which in that state is limited to $7,000. If you have questions about exemption eligibility and the best one to choose if you can take only one, go to your county assessor’s website or call the office or arrange an appointment to discuss the situation.
Losing the Homeowners’ Exemption
If you lose the homeowners’ exemption because you were found ineligible, expect to pay penalties. These may include having to pay the additional tax, with interest; the penalties will vary with the jurisdiction.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.