Buying your first home can be exciting! But there’s also a lot about homeownership you may not know; the kind of things that can save you money. On this episode of GMR, we talk about what homestead exemptions are and what you need to know about them. We also discuss ways to ensure you’re not paying more than you should on property taxes.
Homestead exemption laws have two primary features:
1. Preventing the forced sale of a home
Homestead exemptions were created to prevent the forced sale of a home to meet the demands of creditors, usually except mortgages, mechanics liens, or sales to pay property taxes
Different states have different levels of homestead protection:
Some limit the amount of protection to a certain dollar value.
Some make it unlimited up to a certain size of property (# of acres).
Some list a dollar value of broad protection, but increase that dollar value for specific protection like on medical debt etc.
What does it mean if the dollar value is limited?
That means that a creditor can force you to sell your home, but you get to keep the dollar amount the state has listed from the sale. In Mississippi the dollar amount is $75,000 so if you own your home without any home debt and the home is worth $150,000, but you have $150,000 in medical bill debt or business debt, or some other form of debt, the creditor could force you to sell your home and you’d keep the first $75,000, but they would get the other $75,000.
2. Providing an exemption for a certain value of your home.
Property Tax Exemption
When you go to pay your property taxes, you’ll see there are several entities you pay taxes to.
Example of a home valued at $250,000 in Keller, Texas.
City of Keller - $800
Tarrant County - $500
Tarrant County College - $300
Tarrant County Hospital - $500
Keller Independent School District - $3,000
Total of $5,100 per year on a $250,000 home, your state and city may be different. (In this case it’s about 2% of the value of the home you pay in taxes every year). A homestead exemption of $25,000 on a $250,000 home will lower your property tax bill and save you about $500.
Texas $25,000 exemption on school district taxes (but not other taxing districts, such as cities and counties).
How do I get a homestead exemption?
Fill out an application with your county appraisal office.
Chose the exemptions you qualify for
General residence homestead
Age 65 or older (no disability if you chose this one).
Additional exemption of $10,000 from school taxes.
School taxes are frozen at the dollar amount and % of current taxes for the home
Disabled Veteran Exemption.
Surviving Spouse of Disabled Veteran.
Surviving Spouse of member of Armed Forces Killed in Action.
Surviving Spouse of a First Responder Killed while on duty.
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.
Furthermore, the protection can be lost if the homeowner abandons the protected property by taking up primary residence elsewhere.
Property Tax Value Increases
The appraised home value for a homeowner who qualifies his or her homestead for exemptions in the preceding and current year may not increase more than 10 percent per year.
Tax Code Section 23.23(a) sets a limit on the amount of annual increase to the appraised value of a residence homestead to not exceed the lesser of:
the market value of the property; or
the sum of:
10 percent of the appraised value of the property for last year;
the appraised value of the property for last year; and
the market value of all new improvements to the property.
Should you contest your property taxes?
All county appraisal districts use specific criteria for assessing the value of your property.
In a mass appraisal, the appraisal district classifies properties according to a variety of factors, such as size, use, and construction type.
Using data from recent property sales, the appraisal district appraises the value of typical properties in each class.
They also take into account differences such as age or location.
Three common approaches that the appraisal district may use in appraising property are:
The sales comparison (market) approach.
The income approach
And the cost approach.
The market approach to value is based on sales prices of similar properties. It compares the property being appraised to similar properties that have recently sold and then adjusts the comparable properties for differences between them and the property being appraised.
The income approach is based on income and expense data. This is based on what the assessor believes an investor would pay now for future profit from the property.
The cost approach is based on what it would it cost to replace the building (improvement) with one of equal utility. Depreciation is applied and the estimate is added to the land value.
You should contest your property value because:
The assessor uses a mass appraisal method to value your property so errors are common.
Your house may have enough differences in size and build that the comparable comps used do not properly reflect the value of your property.
I (Leo) have found that the assessor often inflates the value, especially in a good housing market, anticipating a rise in value.
You shouldn’t pay more than is appropriate every year.
Any uncontested amount also carries forward to all the future years.
Value of your neighbor’s properties are lower than yours or lower than market rate.
How to contest?
Go in person to the county appraisal districts office and present your case.
File a property tax appeal - 3 person panel who make the decision.
Use a company to appeal the value for you - charge a percentage (40-50%) of the amount saved.