As a homeowner with a mortgage, you have responsibilities. You also get some tax breaks.
For example, when you own a home and use a mortgage to finance it, you are responsible for paying the principal and interest on your loan each month; for carrying a hazard insurance policy on your home; and, for paying property taxes, when due.
In exchange, via a legal regime known as Homestead Exemption, homeowners can receiveÂ breaks on their real estate tax bills; and protections in the event of a bankruptcy or death in the household.
These are protections not afforded to renters. Only homeowners get to claim them.
Homestead exemption laws apply in most states. For proper tax and legal advice, check with your tax preparer and attorney.Click to see today's rates (May 25th, 2016)
Homestead exemption is a state-governed system of rules and procedures meant toÂ protect the owners of homes.Â Most states offer some form of homestead exemption.
Homestead exemption has four parts to it.
The first part protects your home in the event of a bankruptcy, preventing creditors from taking your home from you in the event of insolvency.
The second part protects a surviving spouse from losing the home to creditors, as a result of the same.
The third partÂ allows tax-exempt homeowners to vote on property tax increases which are proposed by local governments.
And, the fourth partÂ -- the one most familiar to U.S. homeowners -- is the one which grants a discount against a homeowner'sÂ annual real estate tax bill.
Homestead exemption rules exclude a portion of your homeâ€™s value from the figure used to determine your real estate tax assessment. If your home is valued at $300,000, for example, a homestead exemption might base your real estate tax bill on a value of $250,000 instead.
This doesn't mean that your home is worth less. It just mean that your real estate tax bill is calculated off a lower home value.
Depending on where you live, homestead exemption rules could save you $1,000 per year or more off your property tax bill.Click to see today's rates (May 25th, 2016)
Homestead exemption rules varyÂ by state, and can sometimes vary by municipality, too.
For example, most states offer some form of exemption provided thatÂ homeowners meet certain prerequisites.
However, there are only certain states which offer specific homestead exemption to specific homeowner groups, including senior citizens, military veterans, the disabled, and those dealing with financial hardship.
In general, homestead exemption can only be used for a principal residence (i.e. primary home), and can only be claimed by the person(s) primarily responsible for paying the mortgage each month.
Using homestead exemption on a vacation home or an investment property is typically not allowed.
Homeowner "types" receive different treatment under the program, too.
In Georgia, for example, theÂ standard tax exemption is $2,000. A disabled veteran, though, may be eligible for an exemption of up to $60,000.
Your tax preparer can help you determine your the value of your homestead exemption.
If you own a home and meet the state's rules, it's likely that you'll be eligible to claim the homestead exemption, and get a break on your real estate tax bill.
How you claim the exemption may vary.
In some states, a general homestead exemption is granted automatically. There is no paperwork to file and no forms to submit for approval. Your real estate tax bill reflects the adjusted home value and you make your payment as planed.
Other states require you to apply at the date of home purchase.
The application process typically includes a state-provided form with checkboxes, and requires you to show proof of ownership -- usually with a photocopy of your settlement statement and a drivers license, or some other official document.
Senior citizens, military veterans, and homeownersÂ with disabilities should expect to provide proof of "status". This can include proof of age, proof of veteran status, and proof of disability, respectively.
Applications for exemption are reviewed by the local tax assessor's office. In order to claim a full deduction, you must live in your home as of January 1 of the calendar year.
There are benefits to owning a home instead of renting, and the protections afforded by the Homestead Exemption are just some of them.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (May 25th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)