Paying property taxes is one of the biggest expenses of owning a home. Some states give homeowners relief from at least a portion of their property tax liability by creating what's known as a homestead exemption. Let's take a closer look at this provision and how you can benefit from it.
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Understanding the homestead exemption
Homestead exemptions have been around for more than a century, and the laws that create them tend to have two purposes. First, they provide some relief from property taxes. Second, they establish some of the rights that homeowners have against losing their homes to creditors.
Different states have different laws governing homestead exemptions. Most states require that in order to claim a homestead exemption, the property must be your principal residence, preventing you from taking multiple homestead exemptions in different states. In order to claim a homestead exemption against property taxes, you typically have to register with your local tax collection agency.
Homestead exemptions and tax calculations
Usually, calculating your property tax is fairly simple once you know what the homestead exemption amount is. Simply subtract the amount of the exemption from the assessed value of your property as determined by the local tax assessor, and then multiply the remaining amount by your local property tax rate.
The toughest part can be finding out how much of a homestead exemption you're entitled to take. In some states, maximum exemption amounts depend on the value of the property. In others, homeowners of different ages might be eligible for different exemptions, with one common distinction being to favor older homeowners who are typically retired and less able to afford rising property tax bills over time.
Fortunately, local tax authorities will typically help you figure out your exemption as part of the registration process. However, you will usually have to make the first step of getting in contact with your assessor to request the homestead exemption, and if you don't do so by the required date, you could lose the exemption entirely for that tax year.
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Homestead exemptions vary greatly across the nation, so giving simple rules for what homestead exemption you're entitled to take is impossible. Once you know what your exemption amount is, calculating your property tax savings is relatively easy and shows the value of going to the effort of claiming the homestead exemption in the first place.
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The article How to Calculate Property Taxes After the Homestead Exemption originally appeared on Fool.com.
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