Homeownership comes with a great deal of financial responsibility. If you own your home, you're already familiar with the costs of mortgage payments, property taxes, and other expenses associated with general home maintenance and upkeep. Owning property can certainly be a costly investment!
However, there are certain tax benefits designed to help mitigate the financial strain of homeownership, such as the Home Mortgage Deduction and the Residential Energy Credit. In addition to these federal tax benefits, many state and local governments offer a homestead exemption to help ease the tax burden felt by homeowners.
Most homestead exemptions are designed to provide homeowners with certain legal and financial protections on their principal residences. A homestead exemption typically protects the property value of the home from rising property taxes, prevents collections efforts or forced sale by certain creditors, and provides ongoing tax relief after the death of a spouse.
How does the homestead exemption lower my property taxes?
A homestead exemption is often offered as a property tax break on a homeowner’s principal residence by reducing the property’s assessed value. This reduction may be offered as a fixed amount independent of the home’s value or as a percentage of the property’s assessed value.
Depending on the state or local government, additional tax breaks for veterans, seniors, or other groups may also be available as part of the homestead exemption. For example, a number of counties in Georgia offer a valuation freeze exemption; by freezing the property valuation for as long as the homeowner resides there, the homeowner’s tax bill will not be influenced by rising property values.
What legal or financial protections does the homestead exemption offer?
The legal protections of the homestead exemption can prevent forced sales from most creditors, with the exception of foreclosure due to a delinquent mortgage, mechanics lien, or property tax sale from unpaid taxes. This asset protection stops unsecured creditors from forcing a sale to pay off debts up to a certain amount as decided by the state or local government.
How can I take advantage of my state or local government’s homestead exemption?
In order to benefit from the homestead exemption, you are likely required to file an application with your state or local government. The only states that do not currently offer a homestead exemption are New Jersey and Pennsylvania; however, some local municipalities within these two states offer their own homestead exemptions.
If you are a homeowner, be sure to take advantage of any homestead exemption available to you; in addition to saving you money on your tax bill each year, homestead programs offer additional legal and financial protections that you won’t want to miss out on. Because the process of applying for and benefitting from a homestead exemption varies from state to state, it is important to consult a tax professional or local official with questions regarding the exemption.
If you are a Georgia resident, you can learn about homestead exemptions in our state at this link from the Georgia Department of Revenue.
For help with taxes or other accounting services, feel free to contact our firm today.