The homestead exemption may lower the assessed value of your home, saving you tax money. It also protects a certain amount of equity in your home from judgment creditors. That amount varies a great deal by state; but unless you live in one of these four states -- Delaware, New Jersey, Pennsylvania or Rhode Island -- some type of homesteading exemption is allowed. However, in many states, not all homeowners will qualify.
Although some states provide unlimited protection for homesteads when a creditor wins a judgment, federal law allows only a total of $125,000, if the homestead was purchased within 40 months of bankruptcy filing.
Although state regulations vary on who is eligible for a homestead exemption, the qualifications for an actual homestead are fairly similar. The property must be the owned, principal residence of the applicant and/or spouse. You can only have one principal residence, even if you own more than one home in the same state or other states. The homestead exemption application may require proof of primary residence, including:
- drivers' licenses
- voter registration cards
- utility bills
- mortgage payment records.
In many states, homestead exemptions are available only to certain categories of residents. These include:
- Senior citizens
- Disabled people
- Surviving spouses of a person with a homestead exemption
- Those earning less than a specified annual income.
Florida Homestead Exemption
The Sunshine State allows permanent residents to receive an exemption of up to $50,000, as of August 2015. The initial $25,000 exemption applies to property and school district taxes. The second $25,000 applies to non-school district taxes, and the assessed value between $50,000 -- $75,000. The homestead property may consist of up to .5 acres in a city, and up to 160 acres in the country.
Florida homestead law permits the exemption to extend to the entire value of the house for creditor protection. Most other states protect only a certain dollar amount of the homestead's worth from judgments against the homeowner. For example, homestead creditor protection in New York is just $50, 000 as of August 2015, although the state includes some of the highest home prices in the country.
Texas Homestead Exemption
The Lone Star State allows "local taxing units," usually counties, to decide how much of your homestead's value is reduced for property tax purposes. In Travis County, for example, it is 20 percent. The state offers unlimited homestead value for creditor protection, on up to 10 acres anywhere in Texas.
Oklahoma Homestead Exemption
The Sooner State's homestead tax exemption is relatively modest. It only exempts $1,000 of your home's assessed value, yielding a savings of $84 to $140 for the average homeowner, as of 2014. However, Oklahoma is another state that allows unlimited creditor protection for the homestead, with up to one acre in urban areas and up to 160 acres in rural areas.
Iowa Homestead Exemption
The Hawkeye State allows a tax credit for the initial $4,850 of the homestead's actual value. It's judgment creditor protection is unlimited, with .5 acres protected in urban areas and up to 40 acres anywhere else in Iowa.
Georgia Homestead Exemption
The Peach State offers various forms of homestead protection based on state and local tax laws. Statewide, $10,000 of home equity is protected from creditors, with the amount doubling for married couples.