Asset Protection Trust Texas: Wealth Protection, Business Benefits, And Tips
November 20, 2024
Read MoreWhat Is a Homestead?
A homestead refers to an autonomous structure situated on an owned or leased land where its owner lives. The structure can take on various forms, such as:
- Manufactured house
- Single-family home
- Mobile home
- Condominium
- Townhouse
A typical modern homestead can include a maximum of ten acres where the residence is built. The homestead exemption applicant must be an individual investor, not a corporation, trust, or any other business entity.
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Homestead Exemptions in Texas: How they Work and Who Qualifies
What Is a Homestead Exemption in Texas?
The Texas Homestead Exemption refers to a rebate from the state on the appraised value of your homestead. It’s applicable for the period starting from January 1st of that year and is in no way a tax credit.
The exemption will only apply to your primary residence if you own multiple properties. For an investor who owns several homes in different counties, you’re only eligible to apply for an exemption on one house.
Remember that the county’s appraisal district is responsible for appraising property value and doesn’t determine the taxes due. Taxes fall under different taxing units, e.g., port, school district, and community college.
How Does the Standard Exemption Work?
If you’re wondering how much is the homestead exemption in Texas, you should note that A property owner can apply for any one of the following exemptions:
1. School District: Property owners are allowed a $40,000 exemption on their primary residence. Its purpose is to assist in reducing the property tax payable to the government.
2. Veteran’s Exemption: The Lone Star State provides a partial to complete exemption from property taxes to incapacitated veterans.
3. Disabled Homeowners and/or Senior Citizens: Disabled persons and individuals aged 65 and above are eligible to receive an additional $10,000 school district exemption.
4. County Government: If your local government collects a special flood control or road tax, your primary residence can benefit from a $3,000 exemption on its appraised value.
5. Other Taxing Unit Exemption: The Texas home exemption laws allow the taxing units in a county to provide additional exemptions of up to 20% of the appraisal value.
You can use the list above to help answer the question, ‘can you claim homestead exemption rental property in Texas?’ It provides a detailed list of all the exemptions a rental property owner can claim.
Who Qualifies for It?
Fortunately, the state hasn’t placed any strict criteria for applying for the standard $40,000 homestead exemption. The only thing that matters is that you must use the property as your primary residence and have an ownership interest in it.
Simply put, you shouldn’t use it as a vacation/second home. For additional tips on who qualifies for the homestead exemption, go through the information provided on the Texas Comptroller’s website.
How Do I Apply for It?
The application for the Texas homestead exemption is simple and self-explanatory. Provided you meet the requirements mentioned earlier, all you’ll have to do is fill in some paperwork. Please note that the requirements can vary from one county to the next.
Normally, the process you have to follow is as shown below:
I. Go to the county’s tax appraisal website to locate the specific application instructions
II. Get a copy of the Property Tax Form 50-114 or the ‘Application of Residential Homestead Exemption’ from the local property value appraisal district
III. Provide the required information, ensuring you fill in the correct details about yourself and the property in question (the residence you’re claiming as the primary homestead)
IV. Submit the completed form following the instructions issued by the appraisal district
V. Furnish any additional information the district may need, e.g., a copy of your driver’s license.
VI. Make a follow-up with the appraisal district if you don’t get a response after a few weeks
The six steps should help you get an answer to the question, ‘how do I apply for a homestead exemption in Texas?’ The Texas Comptroller’s Office website can provide more tips on its “property tax exemptions sections” and accompanying FAQ section.
Use the website to learn how to fill out a homestead exemption form.
How Much Can Property Tax Increase In Texas Without Homestead Exemption?
In Texas, it is possible for homes without a homestead exemption to experience significant property tax increases. Without the homestead exemption, there is no cap on the annual property tax increase, so potentially steep hikes could occur with rising property values and local tax rates.
If you have a homestead exemption, annual tax increases are capped at 10%, no matter how much the property’s value goes up. This gives homeowners more predictability and protection against sudden spikes in property taxes, which is an important safeguard for many Texas residents.
Calculating Potential Increases
To calculate potential property tax increases in Texas without homestead exemption, multiply the property’s appraised value by the local tax rate. For example, if your property’s appraised value increases from $330,000 to $370,000, and the tax rate is 2.5%, the tax would increase from $8,250 to $9,250. Without the 10% cap that comes with the homestead exemption, the full increase will apply.
Here’s the calculation expressed as a formula:
Tax = Appraised Value x Tax Rate
If you don’t have homestead exemption in place, you could experience unpredictable and steep tax increases. This can put a strain on your financial budget and make long-term housing affordability more challenging.
Do You Have to Live in a House You Own to Claim the Homestead Exemption in Texas?
The Texas homestead exemption can benefit you as a homeowner in three different ways:
1. It assists in reducing your property tax by up to 20%
2. It caps valuation surges at an annual rate of 10%
3. It makes it possible to keep your home, even after filing for bankruptcy
Tips
Please note that you can only use the homestead exemption on your primary residence.
Temporary Moves
The Lone Star State permits homeowners to retain their homestead exemption even after moving away temporarily. It’s an exception that relates to those who don’t set up a primary residence in any other state or who don’t go away from the state for more than two years.
You may no longer benefit from this exemption once this period ends. The only exception to this applies to:
- Individuals serving in the military
- If you’re a nursing home resident
- If you’re at a facility that provides services to the aged, injured, or sick
If either of the three options applies to you, you’re allowed to lease out your home and continue to receive the exemption. But you must not set up another primary residence in the state or anywhere else.
Can I File Texas Homestead Exemption Application Online?
Yes, many appraisal districts are now providing an online application form. Online applications are encouraged for expedited processing and quicker filing. Some of the benefits of filing your home exemption online include the following:
- The application gets updated on the website immediately
- Your application will be pre-filled using the available information
- Online applications eliminate the need for manual processing by CAD staff
- No need to mail, print, or make an in-person submission
Make sure you have a scanned copy of your driver’s license before you begin the application. For those asking, ‘how much is the homestead exemption in Texas?’ you should note that it’s free and only takes a few minutes to complete the exercise.
I Just Moved Into My New Home. When Should I Apply for Homestead Exemption?
You need to apply for an exemption for the applicable portion of that tax year. Ensure you do this before celebrating the first anniversary of buying that property. The state no longer requires you to apply for an exemption by April 30th, as was the case before.
Texas Homestead Exemption Application Deadline
The state previously required homeowners to file homestead exemption forms between January 1st and April 30th for the period when they begin to claim the exemption. Today, you only need to file for the tax year you want to claim. Ensure you do so before the first anniversary.
Supporting Documents for Homestead Exemption
Affix a copy of the state-issued identification certificate or driver’s license. The address on either document should match the one on the property address listed in the exemption form. The chief appraiser can waive this requirement for:
- Certain members of the armed forces and/or their spouses
- Individuals holding certain types of driving licenses
Heir Property
It refers to property owned by multiple people where one of them claims it as their primary residence. The property should have been acquired by intestacy, transfer on death deed, or by will.
Individuals not identified as primary residence owners should provide the following:
- A copy of a recent utility bill
- A copy of the death certificate of the property’s prior owner
Manufactured Homes
Their owners should provide the following:
- A statement of ownership from the Texas Department of Housing and Community Affairs
- A payment receipt showing that they own the home
- A signed affidavit by the applicant on Form 50-114-A showing that:
- The applicant owns the home
- The seller didn’t provide the applicant with an applicable agreement or contract
- The applicant can’t find the seller
Homestead Exemption for Partial Ownership – Unmarried Co-owners
The exemption amount for such property will depend on the interest you hold. For example, if you own fifty percent interest, you’ll only receive one-half of the property exemption, translating to $20,000.
Homestead Exemption for Married Couples
The state will treat the spouses as community property owners, provided they are joint owners and both live in that homestead. The state will grant them 100% ownership of the said homestead.
Surviving Spouse of a First Responder Killed in the Line of Duty
They are entitled to an exemption from the tax due on the appraisal value if:
- The surviving spouse is eligible for purposes of Chapter 615
- They have not remarried since the death of their spouse
- They qualify under the Government Code
What Is the Last Day to File for Homestead Exemption in Texas?
The homestead exemption applications are due on April 30th each year. Make sure to submit your application by this date to claim an exemption for that particular year.
What If You Forgot to File Homestead Exemption Form in Time?
The deadline for filing your submissions used to be April 30th, but this changed in 2021. Starting in 2022, you can apply for exemptions at any time. Make sure to indicate that you’re filing a late application before submitting the form.
What Happens To The Homestead Exemption If I Rent My Home?
In Texas, if you decide to start renting out your home, it will lose its homestead exemption status. Homestead exemption is intended for properties that serve as your primary residence. Once you start renting the home, it is no longer your primary residence, so the exemption ceases to apply.
The result of this will be higher property taxes. The property will be taxed at its full appraised value, removing all benefits of the exemption. You may even find that renting out the home exposes you to back taxes and penalties if you do not notify the appraisal district about the change in occupancy status.
Temporary Rentals
In Texas, you can rent out your homestead temporarily without losing the exemption as long as you meet certain conditions. The property must retain its status as your primary residence, and the rental period should be short-term – typically less than 30 days. Additionally, the home should not be rented out for more than 50% of the year overall. And you must intend to return to the property as your primary residence.
If these conditions are met, you can maintain the homestead exemption. This will keep your property taxes lower. But you could lose the exemption and be subject to back taxes if you fail to comply.
Documentation And Reporting Changes
A homeowner in Texas who transitions from living in their property to renting it out should notify their local appraisal district of the change. This is crucial because renting out the home could impact the homestead exemption, which is reserved for primary residences only. Homeowners should also carefully review their insurance policy as a standard homeowner one may not cover rental properties.
Updating tax records and paying additional taxes if the homestead exemption is lost are crucial considerations. And you should establish a lease agreement and educate yourself on your legal responsibilities in your new role as a landlord.
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Can I Claim Homestead Exemption on Rental Property in Texas? — Conclusion
The Texas Homestead Exemption allows you to claim a homestead exemption in any property classified as your primary residence. While this is not a tax credit, it does help save you money on property taxes.
