Any homeowner has to deal with property taxes. But you can reduce the amount you owe with a homestead exemption. Are you asking, “What is a homestead exemption?” In California, you can qualify for an exemption of up to $699,420 with the state’s homestead exemption rules that went into effect in 2021. If you’re not familiar with the concept, here’s an explanation of how this works and how you can qualify/file for a homestead exemption.
A homestead exemption can do the following:
- Reduce Your Property Tax Bill: It’s possible to reduce the taxable value of your home. For example, if your home is worth $250,000 and you qualify for a $75,000 exemption, you will be taxed as if the property is worth $175,000.
- Protect Your Home Against Creditors: A homestead exemption protects your home and its equity if a creditor attempts to sell it to pay a judgment against you, avoiding lawsuits, wage garnishments, and forced sales.
- Provide Bankruptcy Protection: Per federal law and many state laws, a home is shielded from sale if its equity doesn’t exceed a predetermined threshold. However, this bankruptcy protection only protects against unsecured creditors; the bank holding the mortgage can still foreclose on the home.
Homestead tax exemptions can also help divorced or surviving spouses remain in their homes. After the loss of a partner, a spouse’s income is often reduced, so the exemption provides some financial stability.
Changes to California’s Homestead Exemption Law
In 2020, California’s homestead exemption law eliminated numerous qualifying conditions. It also made exemptions available to anyone with a principal residence. Exemption amounts ranged from $75,000 for single homeowners to up to $175,000 for those meeting specific family, age, and income requirements.
As of January 1, 2023, the amount is set at $349,710 for homes valued at less than the median sale price of properties in the same county the previous year. If the median sale price in your county was higher than the value of your home, you can qualify for up to $699,420.
How to Qualify and Apply
Those who qualify for a homestead exemption typically include low-income homeowners, seniors, people with disabilities, and veterans (and their surviving spouses if their income is limited). Every state and each county can set its own rules for who qualifies and how much you are eligible for.
Depending on your state/location, you can apply online with a state treasury office, with a county tax assessor, or in the appraisal district where you live. If you can’t file online, you’ll need to mail the paperwork to the appropriate office by the filing deadline, and include proof of age, an image of your driver’s license, and annual tax returns.
Automatic vs. Declared Homestead Exemptions
A homestead declaration doesn’t always have to be filed in California. The state has an automatic homestead that can protect your home against a forced sale. It kicks in if the proceeds from a sale aren’t enough to pay the homestead before a creditor; but if there’s a lien on the property, the creditor gets paid first.
A declared homestead protects only exempt equity when you voluntarily sell a home. If you’re experiencing financial trouble and have equity, filing a declaration will protect your homestead. It also protects the proceeds of a property sale for six months. During that time, you can reinvest the homestead in a new home if it covers the sale price.
California’s two homestead exemption systems are as follows:
- System 1: If you reside on the property, it protects the proceeds from forced sales received six months before a bankruptcy filing.
- System 2: Applying to a property where a debtor (not necessarily a resident) lives, it allows an unused portion of an exemption plus a wildcard to be used.
How a Homestead Exemption Is Deducted
In addition to “What is a homestead exemption?”, homeowners often want to know how it is deducted. A homestead (property) tax is typically applied based on the value of a property, as assessed by a local tax assessor’s office. It can be a fixed amount or a percentage of its value. In a fixed exemption, a property tax becomes a progressive tax; it is more suited for people with modest homes.
However, a homestead exemption is not the only way to lower a property tax bill. There may be other options available to you. Avoiding improvements and remodels that increase property value can keep your tax obligations down. Other options include speaking with your assessor to get a second opinion or determine if there was an error. But if you believe there are errors in your tax bill, you can file a tax appeal.
Contact a Real Estate Lawyer
If you qualify for a homestead exemption or have concerns over a tax bill or possible collections action like foreclosure, contact OakTree Law. Our Los Angeles real estate attorneys are familiar with the latest state laws. They’ll find relief options that apply to your financial situation. We can also determine how much of an exemption your home qualifies for. To get started, request a free evaluation or call 888-348-2609.