What are the advantages of homesteading your property

If you own a property, you must be aware of the legal jargon called Homestead exemption. Many of you must have taken advantage of it to protect your home from property taxes and creditors as well. For those, who want to take advantage of it, here is what it is..

What is the Homestead Exemption?

A homestead exemption is a legal provision designated by a state or county that provides certain legal and financial protections for homeowners on their principal residences.

Most homestead state laws provide tax breaks, protection from unsecured creditors, and some circumstances that arise from the death of a spouse.

Property tax is an unavoidable part of homeownership, and for some, it can be a costly burden. Homestead exemption can help lower your tax bill on your primary residence.

It also protects your home from forced sale by certain unsecured creditors in the event of bankruptcy or nonpayment.

It’s important to note that every state offers different exemption laws. Basically, the exemption or tax break can be offered in two ways:

• A fixed amount regardless of the home’s value

• A reduction of assessed value based on a percentage.

What are the advantages of homesteading your property?

Homesteading your property can help save you a lot of money on tax exemptions. Along with tax breaks, you get coverage from unsecured creditors, the death of a spouse, etc. Generally, property taxes are assessed based on the value of your home. The more your home is worth, the more you can expect to pay in real estate taxes.

State Homestead exemptions often have four features:

Property Taxes

Homesteading your property will drastically reduce the home’s value for property taxes. Instead of paying property tax for your home’s assessed value, you’ll only be paying a portion of it because of the homesteading exemption.

For example,

If your tax rate is 2% and your property is assessed at $100,000, your annual property tax will be valued at $2,000. If your state offers a homestead exemption of $40,000 off the property’s assessed value, your revised tax rate will now be $1,200 for a $60,000 worth property.

Forced Sale Immunity

Homesteading shields your home from a forced sale to satisfy debts, such as if you default your auto loan, a lender can’t force the sale of your home or seize your property. If the current amount of equity in your home falls under exemption levels as dictated by legal guidelines, it is illegal for creditors to seize your property in the event of a bankruptcy.

Surviving Spouse Advantages

Not every state has this exemption, but many states provide protection to the surviving spouse by guaranteeing their homesteading rights even after the death of the spouse.

It is also possible that homestead exemptions will allow your property to be free from probate proceedings in the event of death. A spouse can retain the home after the death of another spouse.

Homestead Requirements

In order to declare a homestead on your home, it must be your principal residence. You can abandon an old homestead when you declare another home your new homestead.

Many states offer the homestead exemption to all homeowners, while others restrict it to certain groups, including senior citizens, veterans, and individuals who are disabled.

There are certain criteria you would need to fulfill to qualify for homestead exemption.

• Your home must be your primary residence.

• Although it may differ from state to state, filing for homestead exemption has a deadline. In many cases, you can file up to one year after the deadline has passed.

• Each state or county has its own tax break law. Some counties apply for exemptions automatically while others require the homeowner to apply for it.

How to Claim the Exemption?

The process for claiming the homestead exemption varies from state to state or county to county. Few counties may automatically apply for a homestead exemption on your property. Others will require you to apply for it.

The state of Illinois allows a general exemption of up to $10,000 to be granted automatically. In other states, residents might be required to apply for the exemption each year.

To complete an application for a homestead exemption,

• You might be asked for proof of ownership of the property
• • Senior citizens, veterans, and disabled applicants might be asked to verify their age, military service, or veteran status.
• • The tax assessor’s office in the county where the property is located is responsible for reviewing exemption applications.

Homestead Exemption Considerations

As you already know, the homestead exemption only applies to primary residences, which means you can’t claim it for a rental property or vacation home.

Your adult children or other relatives can only claim a homestead exemption if they have an ownership interest in the property.

If your living situation changes and the home is no longer your primary residence, you might be required to notify the county tax assessor’s office of the change. Failure to do so is considered fraud and can result in a criminal charge.

In the state of Texas, a homestead can include up to 20 acres, if the land is owned by the homeowner and used for a purpose related to the residential use of the homestead.

Homestead Exemption in the State of Iowa

If you own a property in the state of Iowa, you will be eligible for the Homestead tax credit. The current credit is equal to the actual tax levy on the first $4,850 of actual value. A property owner must declare residency in Iowa for income tax purposes and occupy the property for at least 6-months each year.

You will be required to fill the Homestead Tax Credit Application (54–028). The application must be filed on or before July 1.

Notice of transfer or change in the use of property under Iowa Code Section 425.2 includes that the property owner must certify to the assessor that they no longer own the property or have ceased to use the property as a homestead claimed for a homestead tax credit.

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Get in touch with your nearest real estate attorney in Ankeny to learn more about the tax credit and other exemptions on your property. Mark Gray Law PLC is the best Attorney Law Firm in Ankeny specializing in homestead exemptions, estate planning, and real estate law.