If you live in Texas and own a home, there are a lot of opportunities to reduce your property tax bill. From deducting mortgage interest to writing off home improvements, you can save a lot of green when it really counts – income tax time. One of those money-saving goldmines is the homestead exemption. No, you don’t have to own a ranch to qualify for one. Any homeowner can apply for a homestead exemption on their principal residence in Texas.
It’s a great way to lower your overall property taxes. Why? An exemption removes part of the value of your property from taxation and lowers your taxes. For example, if your home is valued at $125,000 and you qualify for a $15,000 exemption, you pay taxes on your home as if it was worth $110,000. This exemption only applies to your principal residence, not to any other property you own.
Beware of homestead exemption scams
There is no fee for making the application for a homestead exemption. Again, there is no fee. However, certain companies offer to “process” your application for a fee, notifying homeowners by sending you a letter in the mail. These letters usually will start appearing in your mailbox around the first few weeks of the new year.
The Texas Attorney General’s Office reports that companies in the past have styled their advertising to make it appear that they are an “official” taxing authority, or that their fee must be paid for the homeowner to get the exemption. Other companies will act as “tax processing centers” – when in fact they’re doing no such thing.
These companies will often mail a very official-looking solicitation letter, saying that for a fee (usually $50 or more) they’ll take care of your homestead exemption application. But the fact is that Texas law requires all these companies to make it clear that they are not a governmental agency. Still, many people are confused by these letters and send in the fees..
Once again, filing for a homestead exemption is free. You just fill out a simple application and mail it in – no fee required. There’s absolutely no reason to get scammed out of $50 in the process.
Qualifying for a homestead exemption is easy. Here’s what you need to qualify:
You must own your home. To qualify for a general homestead exemption, you must own your home on Jan. 1. If you are 65 years of age or older or disabled, you need not own your home on Jan. 1. You may apply for the homestead exemption as soon as you qualify and will receive the exemption as of previous Jan. 1.
Your homestead can be a separate structure, condominium or a mobile home located on leased land, as long as you own it. And, for all you ranch owners, 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.
If you are not the sole owner of the home, you will receive only a portion of any qualified exemption, based on your percent of ownership. For example, you own a 25-percent interest in your homestead valued at $100,000, for a total value of $25,000. You will receive 25 percent of a $15,000 homestead exemption, or $3,750.
You must use the home as your principal residence on Jan. 1. If you have more than one house, you can only get an exemption for your main or principal residence. You must live in this home on Jan. 1.
If you temporarily move away from your home, you can still get an exemption if you don’t establish another principal residence and you intend to return. For instance, if you enter a nursing home, your home still qualifies as your homestead if you intend to return. Renting part of your home or using part of it for a business does not disqualify the rest of your home for the exemption.
Types of exemptions
The Texas Tax Code offers homeowners a way to apply for homestead exemptions to reduce local property taxes. The Texas Property Code allows homeowners to designate their homesteads to protect them from a forced sale to satisfy creditors. That means there are several types of exemptions:
School taxes (all homeowners). You will qualify for a $15,000 homestead exemption on your home’s value for school taxes.
County taxes (all homeowners). If your county collects a special tax for farm-to-market roads or flood control, you will receive a $3,000 exemption for this tax.
Optional exemptions (all homeowners). Any taxing unit, including a school district, city, county or special district, may offer an exemption for up to 20 percent of your home’s value. The amount of an optional exemption can’t be less than $5,000, no matter what the percentage is. For example, if your home is valued at $20,000 and your city offers a 20-percent exemption, your exemption is $5,000, even though 20 percent of $20,000 is just $4,000. 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 you qualify. The taxing unit must decide before July 1 of the tax year to offer this exemption.
Age 65 or older homeowners. Taxing units are allowed to offer additional homestead exemptions to homeowners who are age 65 or older or disabled.
Disabled veterans/survivors. You may qualify for a property tax exemption if you are a Texas resident and are either (1) a veteran who was disabled while serving with the U.S. armed forces or (2) the surviving spouse or child (under 18 years of age and unmarried) of a disabled veteran or of a member of the armed forces who was killed while on active duty.
There’s a lot to consider when filing and applying for an exemption, but as long as you avoid the scams, it’s a great way to save money on your annual property taxes. For more information on exemptions, contact the Texas State Comptroller’s Office or the Texas Attorney General’s office.
For your real estate needs please contact RE/MAX Genesis at 830-833-2000.