A homestead exemption is a legal mandate. It helps protect a home from seizure by creditors following a declaration of bankruptcy or the death of a spouse with ownership interest.
In many states, the law also protects homeowners from higher property taxes. The amount of the homestead exemption, however, can vary significantly by state. Understanding how it works can keep you safe from financial disasters and put extra money in your pocket.
What Is the Homestead Tax Exemption?
A “homestead” is the primary residence of a homeowner. This type of tax exemption shields homeowners from excessive amounts of property tax. This is accomplished through a reduction in the assessed value of a home for property tax purposes.
Beyond the property tax exemption, many states implement a homestead exemption as a form of creditor protection. The homestead exemption makes a primary home a shielded asset — if homeowners fall on hard times, they don’t have to worry about having a place to live.
How Does Homestead Exemption Work?
In some states, like Florida, homestead exemption lowers property taxes for homeowners. Research your state’s homestead exemption to find out how much you could save on taxes.
Other states, like Massachusetts, have homestead exemption laws to protect homeowners that are facing bankruptcy and other types of liens. These laws are in place so that they don’t lose their homes. Each state imposes its own limits and restrictions for the amount of the homestead.
In addition to the variance in state homestead exemption amounts, even the meaning of “home” can vary by state. For example, in California, mobile homes, boats and condominiums can be considered primary residences. In other states, only a free-standing home is covered by the homestead exemption.
Who Qualifies for the Homestead Exemption?
Homestead exemption laws are state-enacted laws, so the specific requirements can vary. The most common requirement is that the home must be your primary residence. But keep in mind, the exemption will usually extend to the spouse or surviving heirs of the property owner as well.
Here is a look at some homestead exemption requirements for different states:
- Property owners in California can apply for a homestead exemption on their dwelling. This includes houses, condos and mobile homes.
- Florida law requires that anyone applying for the exemption should be a U.S. citizen or permanent resident. Applicants cannot have a concurrent homestead exemption in another state.
- Illinois allows homeowners to apply for a homestead exemption as long as someone with a legal interest in the property lives there full time.
Some states, like Illinois and Florida, have additional homestead exemptions for widows, veterans and individuals with disabilities.
Good To Know
The homestead exemption is unrelated to the Homestead Act. The homestead exemption reduces property tax or protects the homeowner or their heirs from having their home seized. The Homestead Act was legislation signed by President Abraham Lincoln in 1863. It allowed Americans to claim public land as their own, but the law is no longer in effect.
How To Qualify for Homestead Exemption
The most important qualification for a homestead exemption is to own the home and use it as your primary residence. Your primary residence is typically the one where you spend the most time. It would be the one whose address you use on your tax returns, driver’s license and voter registration card. You might also qualify if you’re the spouse or heir of the homeowner.
Eligibility criteria vary according to whether the exemption is for taxes or bankruptcy.
Qualifying for a Homestead Tax Exemption
If you qualify for a homestead tax exemption, you must file or fill out an application to receive it. In Illinois, for example, you can apply online through your county tax assessor’s office. The exemption is auto-renewing, so you only need to apply one time. Florida homeowners also apply with their county, but in this case, with the county property appraiser.
Homeowners who meet additional criteria can sometimes receive special benefits. Such criteria might be that they are a senior citizen, a veteran, a first responder or someone with a disability.
Check deadlines for applying for an exemption in your state. In California, for example, homeowners must file by Feb. 15 to receive the full exemption for the year.
Qualifying for a Homestead Exemption for Bankruptcy
Qualifying for a homestead exemption in bankruptcy is more complicated. For that, you must have purchased your home at least 40 months before you file for bankruptcy, according to Nolo. However, if you previously owned a home in another state and used the proceeds from that house sale to purchase your current home, both periods of ownership will count toward the 40 months.
In the case of a Chapter 7 bankruptcy, you must also be current in your mortgage payments.
How Does Bankruptcy Impact the Homestead Exemption?
If you need to file bankruptcy, your state’s homestead exemption might save your home from liquidation. State and federal bankruptcy laws allow creditors to reclaim some of the money they’re owed without leaving the debtor completely penniless.
For example, if you live in Massachusetts, the homestead declaration allows you to keep a larger percentage of the proceeds if you have to sell your house as part of a bankruptcy judgment. In some cases, however, you may not have to sell your home. This can happen if the amount of the exemption is greater than the amount of equity you have in your home.
Depending on where you live, you may be able to choose whether you want to use a federal or state homestead exemption when you file for bankruptcy. Some states allow homeowners to choose either the federal or state exemption amount, but others do not. To learn more about which option is available to you, consult a bankruptcy attorney in your state.
A homestead exemption helps protect a home from a seizure following a declaration of bankruptcy or the death of a spouse. It can also protect the homeowner from higher property taxes. To further understand how to qualify for a homestead exemption or to find out more details, you can call or visit your local tax assessor’s website.
Daria Uhlig contributed to the reporting for this article.
Information is accurate as of April 20, 2023.
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- NOLO. "The Homestead Exemption in Bankruptcy."
- IRS. "Publication 523 (2022), Selling Your Home."
- Florida Department of Revenue. "Property Tax Exemptions and Additional Benefits."
- California State Board of Equalization. "Homeowners' Exemption."
- Cook County Assessor's Office. "Homeowner Exemption."