What is Homestead Exemption

A homestead exemption protects the value of a home from property taxes and creditors following the death of a homeowner spouse. A homestead exemption can be found in state statutes and constitutional provisions across the U.S. and is an automatic benefit in some states. In states where the homestead protection is not automatic, homeowners must file a claim which must be re-filed when moving primary residences.

BREAKING DOWN Homestead Exemption

The primary features of homestead exemptions are meant to provide both physical and financial shelter for the surviving spouse, with regard to their primary residence. Most homestead exemptions use a monetary value to determine property tax protection, implementing a progressive-style tax to home value in order to assure that homes with lower assessed value benefit the most from the exemption.

Primary Features of Homestead Exemption Laws

  1. Prevent the forced sale of a home to meet creditor demands: Different jurisdictions have homestead exemption laws with varying degrees of protection. Some protect only property up to a certain value, and others have acreage limitations. If a homestead exceeds the limits, creditors may still force the sale, but the homesteader may keep a portion of the proceeds.
  2. Provide shelter to the surviving spouse
  3. Provide an exemption from property taxes on a home: When it comes to providing a homesteader a break on property taxes, homestead exemptions usually offer fixed discount, such as the first $50,000 of the assessed value with the remainder being taxed at the normal rate. For example, using a $50,000 homestead exemption, a home valued at $150,000 would then be taxed on only $100,000, or a home valued at $75,000 would then be taxed on only $25,000. The effect of a homestead exemption amounts to turning a property tax into a progressive tax. In some places, the exemption is paid for with a local or state (or equivalent unit) sales tax.
  1. Allowing a tax-exempt homeowner to vote on property tax increases to homeowners over the threshold, by bond or millage requests

A "homestead" is considered the primary residence of a person. No additional exemptions can be claimed on any other property anywhere, even outside the boundaries of the jurisdiction, in which the exemption is claimed. In some states, homestead protection is automatic. In many states, however, homeowners receive the protections of the law only if they file a claim for homestead exemption with the state. Protection can be lost if the homeowner decides to set up their primary residence elsewhere.