Homestead exemption
From Wikinvestor
Homestead exemption is a legal regime designed to protect the value of the homes of residents from property taxes, creditors, and circumstances arising from the death of the homeowner spouse. Laws enacting such protections are found in state statutes or constitutional provisions which exist in many states in the United States.
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Features
Homestead exemption laws typically have three primary features:
- They prevent the forced sale of a home to meet the demands of creditors;
- They provide the surviving spouse with shelter;
- They provide an exemption from property taxes which can be applied to a home.
For purposes of these statutes, a homestead is the one primary residence of a person, and no other exemption can be claimed on any other property anywhere, even outside the boundaries of the jurisdiction where the exemption is claimed.
In some states, homestead protection is automatic. In many states, however, the homeowner must file a claim for homestead exemption with the state, and will not receive the protections of the law until this has been done. Furthermore, the protection can be lost if the homeowner abandons the protected property by taking up primary residence elsewhere.
In most cases, homestead exemptions do not apply to forced sales to satisfy mortgages, mechanics liens, or sales to pay property taxes.
Immunity from forced sale
Different jurisdictions provide different degrees of protection under homestead exemption laws. Some only protect property up to a certain value while others are limited by acreage limitations. If homesteads exceeds these limits creditors may still force the sale while the homesteader may keep a certain amount of the proceeds of the sale.
Texas, Florida, Iowa, Kansas and Oklahoma have some of the broadest homestead protections in the U.S., in terms of the value of property that can be protected.
Texas's homestead exemption has no dollar value limit and has a exemption limit for homesteads inside of a municipality (urban homestead) and for those outside of a municipality (rural homestead). The rural acre allotment is doubled for a family: can be shielded from creditors in Texas for a rural homestead. Both the Kansas and Oklahoma exemptions protect of land of any value outside of a municipality's corporate limits and of land of any value within a municipality's corporate limits. Most homestead exemptions cover the land including fixtures and improvements to it, such as buildings, timber, and landscaping.
New Mexico has a $60,000 exemption. See NMSA 1978, Section 42-10-9. Alaska has a $54,000 exemption.
In most instances the exemptions do not protect against the value of a loan made in order to purchase the home (purchase money security interest).
In the majority of states the real dollar value of "protection" provided by these laws has diminished as exemption dollar amounts are seldom adjusted for inflation. The protective intent of such laws, with some notable exceptions stated above, has been eroded in most states.
Property tax exemption
A homestead exemption is most often only on a fixed monetary amount, such as the first 50,000 dollars of the assessed value. The remainder is taxed at the normal rate. In this case, a home valued at 150,000 would then only be taxed on 100,000; a home valued at 75,000 would only be taxed on 25,000.
The exemption is generally intended to make the property tax a progressive tax. In some places, the exemption is paid for with a local or state (or equivalent unit) sales tax.
The homestead exemption sales tax (HEST) in some places has been criticized for not exempting groceries, thus the poor end up paying some of their food money to subsidize those who can already afford their own homes. Since the poor typically rent, neither they nor their landlords get an exemption in return either.
Examples
- Georgia - Allows a 1% HEST, but it is only done in a few counties. None exempt groceries, but all must exempt prescription drugs.
- Oklahoma - Allows a $1000 deduction of the assessed valuation if owners file for homestead exemption with the local county clerk. This is about $75 to $125 of savings per year.
- Texas - Allows a $15,000 deduction regardless of house value. Additional exemptions are available for county taxes, people over 65 and people who are disabled.[1]
- Florida homestead exemption - Allows a $50,000 exemption for the value of property which is assessed a property tax.
- Boulder, Colorado - Allows a 50% deduction for up to the first $200,000 (so $100,000 exemption) for seniors (over age 65) that have lived in their property for ten consecutive years.
- Louisiana - Allows a $7,200 dollar tax deduction on property of residence.
Notes
References
- Combs, Susan. Texas Property Tax Code 2006 Edition Retrieved 22 May 2007.
