What Are Homestead Exemptions?

How Exemptions Might Lower Your Property Taxes and More

There are two types of homestead exemptions. The first are homestead property tax exemptions, which might help you lower the taxes you pay on your primary home. The second are homestead exemptions which might help protect your primary home’s equity from creditors or during bankruptcy.

The rules for property tax exemptions can be set by state or local governments. The rules for homestead creditor exemptions are generally set by states although federal rules might apply to your home as well.

What Are Homestead Property Tax Exemptions?

Homestead tax exemptions allow homeowners to lower the amount of property taxes they pay. These exemptions might be based on a percentage of the home’s value, or they may be a fixed dollar amount.

For example, a homestead exemption might allow you to reduce the value of your home by 10% for tax purposes. This means if your home’s assessed value is $300,000, your property taxes would be calculated as if the home were valued at $270,000.

A fixed dollar amount exemption works in a similar way. An exemption might allow you to reduce the assessed value of your home by $30,000 for tax purposes. This means if your home’s assessed value is $300,000, your property taxes would be calculated as if it were valued at $270,000 in this case too.

What Are Homestead Creditor Exemptions?

Your state might also have homestead exemptions that protect the value of your home’s equity from creditors under certain circumstances. These exemptions might also prevent a creditor from forcing you to sell your home to satisfy unsecured debts under certain circumstances.

For example, say that your state’s homestead exemption allows you to protect $60,000 of your home’s equity from creditors and that you have $30,000 of credit card debt. Because the amount of your credit card debt is less than the amount of the homestead exemption, the credit card company cannot force you to sell your home to pay off the debt.

The case is different when your unsecured debts are greater than the homestead exemption. For example, say you have $80,000 of credit card debt and your state’s homestead exemption allows you to protect $60,000 of your home’s equity. In this case, the credit card company may be able to force you to sell your home to pay off the debt.

There also can be protections for surviving spouses and homeowners filing for bankruptcy. Consult a financial professional to understand the protections that may apply to you.

Keep in mind that these homestead exemptions only apply to unsecured debts—debts like credit cards or medical bills that do not use your home to secure the debt. This means these exemptions will not protect you from foreclosure if you are unable to make your mortgage or home loan payments.

Who Is Eligible for the Homestead Exemption?

Eligibility for homestead exemptions vary by state and there can be additional local requirements too. In some states, all homeowners are eligible for exemptions. Other states may require the homeowner to be a Veteran, a senior citizen, a person with a disability, or meet income requirements. Rental and investment properties are usually not eligible for a homestead exemption.

How Do You Apply for a Homestead Exemption?

Applying for a homestead exemption differs depending on the state. In some states, the homestead exemptions are automatic. You do not need to apply to enjoy the benefits of exemptions. In other states, you may be required to apply only once. Certain states, however, may require you to reapply for the exemption every year.

You may be able to apply for the exemption online via your state or county’s website. If not, expect to mail a paper application to the relevant state office or county auditor.

* Freedom Mortgage is not a financial advisor. The ideas outlined above are for informational purposes only, are not intended as investment or financial advice, and should not be construed as such. Consult a financial advisor before making important personal financial decisions, and consult a tax advisor regarding tax implications and the deductibility of mortgage interest and charges.

Last reviewed and updated March 2024 by Freedom Mortgage.