What is the homestead exemption?
The homestead exemption is a legal provision in a state’s tax laws that reduces the property tax on a home, can protect a home from bankruptcy and provides rights to surviving spouses.
A homestead refers to a dwelling inhabited by the homeowner.
What are the qualifying factors for a homestead exemption?
Eligibility requirements for the homestead exemption will vary by state. However,
the principal qualifying factor in most states is that the homestead is the primary place of residence for the homeowner.
Some states make a general homestead exemption available to all homeowners who reside in the home. In other
states, only senior citizens, surviving spouses of veterans and former military members and/or people with a disability can qualify. There may be income limits for the exemption as well. Other states establish qualifying criteria around the
homestead alone.
How much money can I save with a homestead exemption?
Most states have established a maximum amount for the exemption, which starts at just $5,000 and goes all the way up to $500,000. In Florida,
the homestead exemption can be as high as $50,000.
The average homestead exemption amount in the U.S. is approximately $30,000 to $50,000.
How can the homestead exemption shield me from unsecured creditors?
The
homestead exemption offers a limited amount of protection from unsecured credit lenders, which includes credit cards, personal loans and lines of credit. This means these creditors cannot force the homeowner to sell the home if owed money.
The amount of financial protection offered for unsecured credit varies by state, with some, including Florida, Iowa and Texas, providing unlimited financial protection to qualifying homeowners against unsecured creditors.
How can the homestead exemption help a surviving spouse?
After
someone dies, their surviving spouse and family may be granted the right to continue living in the “homestead,” even if the title of the house transfers to someone else. In addition, some states preclude a property with a homestead
exemption from probate proceedings. Finally, homestead allowances can provide a surviving spouse with a specific amount of money, which is also protected from creditor claims.
How do I file for a homestead exemption?
To receive a homestead tax exemption, you’ll need to make a homestead declaration by filling out an application. The deadline is usually toward the beginning of the year, before the first quarter’s property taxes are due.