Understanding Homestead Exemptions
Many people hear about homestead exemptions but not everyone really gets how it works and as a responsible homeowner, you should be thoroughly aware of the things you are entitled to. So, we want to guide you on how to fully understand homestead exemptions including the steps on filing.
We cannot emphasize this enough. Learning the way around the state of Texas’ Homestead Exemptions is really necessary for all homeowners. For one, it may aid in lowering your taxes. Also, it may be very helpful during the difficult times you weren’t prepared for.
WHAT IS HOMESTEAD EXEMPTION?
The term homestead exemptions can refer to homestead protection, which guards a person’s primary residence in the case of a financial hardship, such as the death of a spouse. A homeowner who suddenly lost his spouse, for example, may be faced with higher bills than he can afford to pay. This is when options like selling the house may seem like the only possible solution. While for some, people facing overwhelming debt may decide to declare bankruptcy. In the course of such sudden financial crisis, you may consider Texas Homestead a true blessing. Having a homestead status would prevent a forced sale of your primary residence, especially for the duration of a foreclosure and bankruptcy. Note that the Texas Homestead would only cover your primary residence. The exemption does not apply to the rest of your properties. However, for the primary residence, keep in mind that it should be less than 10 acres if situated in an urban setting and 100 acres if located in a rural setting, regardless of the property’s value.
As was mentioned above, Homestead Exemption aids in reducing Texas homeowners’ overall property taxes. An exemption works by removing a part of the value of your property from taxation thus lowering your taxes. For example, if your home is valued at $150,000 and you qualify for a $20,000 exemption, then you would only have to pay taxes on your home as if it was only worth $130,000.
WHAT ARE THE AVAILABLE EXEMPTIONS?
- School Property Taxes
More often than not, the school property taxes takes the largest chunk of homeowners’ property tax bill. Fortunately, the state of Texas implements a deduction of $15,000 off the property assessment value when calculating the school property taxes.
Assuming that your property is valued at $150,000, $15,000 is removed from this leaving us with $135,000. If we assume that the School property tax is 1.5%, this takes us to a total of $2,025 as opposed to an amount of $2,250 without Homestead exemption. In addition, taxing units have the option to offer a separate exemption of up to 20% of the total value.
- County Taxes
A county may collect a special tax for the purpose of farm-to-market roads or even flood control. In line with this, a homestead owner may receive a $3000 exemption for this tax. If the county grants an optional exemption for homeowners age 65 or older or disabled, the owner will only receive the local-option exemption.
- Optional exemptions
This is available to all homeowners. Any taxing unit-including a city, county, school, or special district-may offer an exemption of up to 20 percent of a home’s value. But, no matter what the percentage is, the amount of an optional exemption cannot be less than $5,000. Each taxing unit decides if it will offer the exemption and at what percentage. This percentage exemption is added to any other home exemption for which an owner qualifies. The taxing unit must decide before July 1 of the tax year to offer this exemption.
For example, if your home is valued at $20,000 and your city offers a 20% optional exemption, your exemption is $5,000, even though 20% of $20,000 is just $4,000.
The governing body of each taxing unit decides whether it will offer the exemption and at what percentage. This percentage exemption is added to any other homestead exemption for which the applicant qualifies.
- Age 65 or older and disabled exemptions
Individuals who are 65 and older and/or disabled and are residential homeowners may qualify for a $10,000 homestead exemption for school taxes, in addition to the $15,000 exemption for all homeowners. If the owner qualifies for both the $10,000 exemption for 65 and older homeowners and the $10,000 exemption for disabled homeowners, the owner must choose one or the other for school taxes. The owner cannot receive both exemptions.
Although a homeowner is considered to be disabled by other disability programs, it does not automatically guarantee a homestead exemption. Disability exemptions only apply if the homeowner cannot engage in gainful work because of physical or mental disability.
- Optional 65 or older or disabled exemptions
Any taxing unit may offer an additional exemption amount of at least $3,000 for taxpayers age 65 or older and/or disabled.
This exemption only applies to your principal residence, not to any other property you own.
For our veterans, they can only qualify for this exemption on their homestead if they have a disability rating of 100% or individual unemployability from the Veterans’ Administration and are receiving 100% disability payments from the VA. Your disability must be service connected. If you qualify, 100% of the value of your residence homestead will be exempted.
Take note: Taxing units have the option to offer a separate exemption of up to 20% of the total value.
WHAT IF I BOUGHT A HOME WITH EXISTING HOMESTEAD EXEMPTION?
When you buy a home, the taxes for the year will generally be prorated at the closing. This doesn’t actually change your tax liability; the tax assessor will calculate that later in the year. The proration at closing will be based on estimated taxes due. You should be aware of the rules regarding homestead exemptions so that you are prepared if your actual tax liability turns out to be different.
If you buy or sell a home that has only a general homestead exemption on it, the exemption normally stays in place for that entire tax year. The final taxes for the year will reflect the exemption. However, the new owner will have to qualify for the exemption by filing an application in his or her own name for the following year. There is one exception. You should be aware that in January of each year, HCAD sends a postcard to each person who has a homestead exemption to confirm that they are still occupying the property. If the card is returned undeliverable, the homestead exemption will be removed and it will be necessary to file a new application to reinstate it. If the home you buy has had a cap in place for several years, be aware that the value of the home, and the taxes, may increase substantially in the year following the year you purchase it. This is because your cap won’t take effect until the second year after you purchase the home.
If you buy or sell a home that has an existing over-65 or disability exemption, the rules are different. Whether the over-65 or disability exemption stays in place depends on whether the person who qualified for that exemption transfers it to a different homestead during the same year.
- If the over-65 or disabled person does not establish a homestead exemption on a different homestead, the exemption stays in place for the entire year.
- If the over-65 or disabled person does establish a homestead exemption on a different homestead, then when the tax assessor calculates taxes on the sold home for the year, the assessor will prorate the taxes to reflect the over-65 exemption or disability for only the portion of the year that the over-65 or disabled person owned it. In short, if the seller is over-65 or disabled and establishes an exemption on a different home, taxes for the year will be higher than they would if the seller does not establish another homestead exemption.
- If both the buyer and the seller are over-65 or disabled, the buyer can avoid the proration problem by applying for the over-65 or disability homestead exemption in his/her own right.
HOW DO I QUALIFY?
Now that we have discussed the different exemptions, you must also be aware of its requirements. To be honest, qualifying for a Homestead Exemption is pretty simple. First off, you must own your home on January 1st. However, if you are 65 years of age or older or disabled, you need not own your home on January 1. You may apply for the homestead exemption as soon as you qualify and will receive the exemption as of the previous January 1.
If you have more than one residential property, you must only apply for the exemption of your main or principal residence. In addition, you must live on the said property on January 1st of the tax year. However, if you temporarily moved away from your home, you can still get an exemption provided that you do not establish another principal residence and you intend to return. For instance, if you enter a nursing home or a rehabilitation facility, your home still qualifies as your homestead as long as you still intend to return. Renting part of it for business does not disqualify the rest of your home for the exemption.
The type of ownership should be individual and not as a corporation or a business entity. It may be a separate structure, or a condominium or a mobile home on a leased land, as long as you own it and you live in it. And for all of the ranch owners here, your homestead can include up to 20 acres if the land is used as your yard. A residence can also be owned by an individual through an interest in a qualifying beneficial trust and can be occupied by a trustee of a qualifying trust.
HOW DO I APPLY?
You should file your regular residential homestead exemption application between January 1 and April 30. Early applications will not be accepted. If your application is postmarked by April 30, this will allow the district time to process it before your tax statement comes out in the fall. If you miss the April 30th deadline you can still apply:
For a general exemption: up to one year after the date taxes became delinquent for the year (usually February 1 of the year following the tax year).
For an over-65 or disabled person: if you turn 65, become totally disabled, or acquire a property during the year, you can apply and have the over-65 or disability exemption activated for that year. The deadline to apply for an over-65 or disabled person’s exemption for the year in which you qualify is the first anniversary of the date you qualify. In other words, you have one year from the date you qualify to apply. For example:
- If you are already qualified and you purchase a different home, you have one year from the date you occupy the new home to apply.
- If you turn 65 during the year, you have until your 66th birthday to apply for the year in which you turn 65.
- If you become disabled during the year, you have one year from the date you became disabled to apply.
Otherwise, the deadline for applying for the over-65 or disability exemption is the same as the deadline given above.
WHAT ARE THE REQUIREMENTS I NEED TO SECURE?
Effective September 1st, 2011, in order to qualify for a residential homestead exemption, you must provide a Texas driver’s license or state ID card, and your vehicle registration receipt. Furthermore, you’ll need to file an Application for Residential Homestead Exemption with the county appraisal district between January 1st and April 30th of the tax year – or up to one year after you pay your taxes. During the year, if you turn 65 or become disabled, you must apply for the 65 or older/disabled exemption no later than one year from the qualification date. Once you receive an exemption, you don’t need to reapply again unless the chief appraiser sends you a new application. In that case, you must file the new application. If you should move or your qualifications end, you need to inform the appraisal district in writing before the next May 1.
We highly recommend for you to complete your application for tax exemption between January 1 and April 30, 2016. You must also secure all the necessary documentation beforehand for easier processing. You may file the completed application and all required documents with the county appraisal district for the county in which you live in.
Dallas County: (You can now apply for your exemption online.)
For the application forms, you may download them here:
Please be aware that there are ongoing scams regarding Homestead Exemption applications wherein unscrupulous companies offer to process your application for a certain amount. Be aware that there is no fee in homestead exemption application. Letters stating such start to circulate during the first weeks of January. Please be assertive and never entertain these letters. They may look like a legitimate government looking letter but please do not be fooled. Again, filing for homestead tax exemption is totally free.
For further guidance or if you require help in understanding certain issues regarding the Homestead Exemption application, please do not hesitate to contact The Fejeran Group. We will assist you in any way we can.