How A Homestead Exemption Can Minimize Your Property Taxes

High prices, limited inventory, and a variety of other serious barriers make homeownership a precious gift for people who can afford to purchase instead of rent. But does anyone really own their home? Even if your mortgage is completely paid off, there isn't a single state in the country that doesn't charge some form of annual property tax. It's a critical source of revenue for cities and counties that typically pays for roads, schools, emergency services, and other public services.

Property tax rates can vary widely depending on your location, your local government's budgetary requirements, the assessed value of homes in your area, and even state laws pertaining to rate increases. Illinois, Connecticut, and New Jersey have the highest property tax rates, while Alabama and Hawaii are among the lowest. In many states, you can reduce your annual property tax bill by filing for a homestead exemption, a legal status that can protect you from creditors and lower the assessed value of your home.

Although appealing your home's assessment is the easiest way to save on property taxes, filing for a homestead exemption can also lead to major savings. Typically mandated by state law, homestead exemptions provide a tax break to all homeowners. They are either calculated as a flat dollar or percentage exemption, where a certain amount of money is deducted from the value of a home before the prevailing tax rate is applied. This can be especially beneficial to low-income homeowners, as well as veterans and cash-poor seniors who may qualify for higher exemption rates that minimize their property taxes even more.

So, how do you get a homestead exemption? You'll want to research the specific requirements in your state first. Because it's one of the potential tax benefits you can expect when purchasing a house, consider looking into the details around homestead exemptions before closing on a new place. This is especially important if you're considering an out-of-state move where the property tax structure may be wildly different. Along with determining what the specific exemption rates will be, you should also carefully consider the eligibility requirements. Typically, you can only claim a homestead exemption on your primary residence. In some places, you may need to meet additional criteria, like being a senior or a veteran.

After determining that you're eligible, you will then need to file a homestead declaration form with your local government tax assessor's office. (A simple Google search of "file a homestead exemption + your state" will provide you with detailed information about the specific process that applies to you.) In some states, like Florida and Georgia, once your homestead exemption has been approved, it will automatically renew each year. In other states, like Vermont, you will need to file for your exemption annually. You should then see the homestead exemption applied when you receive your annual property tax bill. Keep in mind that if your ownership interest in a property changes because of a marriage, divorce, death, or other circumstances, you may need to file an updated declaration. Make sure to consult a tax attorney if you find yourself navigating a more complex ownership structure, like inheriting a house or co-ownership.