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Using the Homestead Exemption as a Closing Tool to Get More Sales.

The end of the year is coming ... and with it there is a Year End Bonus For Buyers out there to be had.  The problem is there's only about four months left in the year to take advantage of it.

Actually... it's much less than that... depending on how long it takes you to go from having an accepted offer... to a closed and funded sale.

I am talking about The Homestead Exemption.

Texas as a state is one that very much encourages Individual Home Ownership.  People who own their homes are more likely to take part in local area activities.  They are more likely to vote, and more likely to run for offices like school boards, city council positions, mayors of their city, and even state-wide positions.  This is something that is Good For Texas, and it's something that's Good For You.

The Homestead Exemption is something that many people who are renting homes or apartments may not be aware of.  The net effect of the Homestead Exemption is sort of a "discount" on a property owner's real estate taxes... but it's only for a person's "homestead"... which is the home they own, and that they are personally living in.

A general explanation of how it works is as follows: 

If you have the Homestead Exemption on your home, certain entities that "tax" an owners home will "exempt" a portion of the home's value from property taxes.  For example, if that taxing entity is a local ISD or Independent School District, it may "exempt" a portion of the value of that home from being taxed.  If that home is worth $140,000, and the portion of its value exempted is $20,000... it's like getting a 14% tax discount on that portion of a homeowner's yearly tax bill due the local ISD.

Sometimes the amount may be small, sometimes it may be larger, but nonetheless, it is a money-saving feature that owning your own home provides, and one that can very easily be taken advantage of. 

The only "catch..." in Texas and in most states, is that a homeowner will only qualify if they actually OWN the property as of January First of the taxable year in question.  That means... if a buyer closes on their home this year on December 28, 2012... they are "in title"... or they own that property as of January 1, 2013, and are then eligible for a tax break for the ENTIRE year of 2013. 

IF you miss closing on your home in 2012... if even by only ONE day, you lose a full year of these tax benefits, and are not eligible again for the Homestead Exemption until January 1, 2014.

So... if you are sitting on the fence, wondering if buying a home in the next few months is a good idea, here is just one more reason why it is to your advantage to own your own home.

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Comment balloon 49 commentsKaren Anne Stone • August 13 2012 05:57AM

Comments

Good morning Karen -

Excellent explanation of the Homestead Exemption.  I always encourage potential buyers to check all tax breaks that are offered in the Albuquerque and Rio Rancho NM areas.  I find it surprising that many arn't aware these breaks are available and waiting to be taken advantage of.

Have a great week ahead my friend.

Posted by John McCormack, AlbuquerqueHomes.com, Albuquerque Homes Realty (Albuquerque Homes Realty * www.AlbuquerqueHomes.com) about 5 years ago

John:  And a good morning to you as well!  It surprises me that I rarely hear anything about the Homestead Exemption from really ANY of the Realtors I know.  At this time of the year, and for the next several months, it should be part of what they share with both their buyers AND their sellers. 

It's a tax break that doesn't cost a thing.  No application fee, no costs.  You just let your local real estate taxing entity know you OWN your home, and are living in it as of Jan 1st... and you get a tax break.  What could be easier?

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Because a few years ago our state Governor just "turned off" our exemption in GA I don't even think about that anymore.  It's back "on" with a new governor now, but a lesser amount.  The only clients I have that have asked about it recently have a home to sell before they can buy... so no pushing them by a certain date.

Posted by Tammy Lankford,, Broker GA Lake Sinclair/Eatonton/Milledgeville (Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668) about 5 years ago

Tammy:  I find it interesting that your current Governor, a "liberal" Democrat, reinstated your Homestead Exemption, which in effect, lowers taxes, and that your former governor, a Republican, I believe, did away with the Homestead Exemption, which in effect, raises taxes.

All we hear about from some "news outlets" is how the Dems raise taxes, and the Reps lower them... and here we have had the reverse happen.  Good for your Governor.  I am glad she reinstated the tax savings program.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

This is a great explanation of the Homestead Exemption in Texas and a very compelling reason to get out there and buy a home.

Posted by Chris Ann Cleland, Associate Broker, Northern VA (Long and Foster REALTORS®, Gainesville, VA) about 5 years ago

Karen:  Suggested!  A new buyer must play or exercise every monetary option at their disposal.  The Homestead Exemption you speak of, is just one of those to consider.  And a good one.  Utilize all the money-saving options available to you and you had real savings adding up.  In this day and age, who doesn't want that???

You're so right too ... time is of the essence, should a new home buyer hope to take advantage of this exemption for the coming year.  Starting the home buying and mortgage financing process NOW, is very important ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) about 5 years ago

Excellent thought Karen Anne with the phrase missing out on a whole year's exemption by waiting too long, which will take you into 2014. GREAT CLOSING idea......

Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) about 5 years ago

Chris Ann:  As we both know, there are many reasons to get out and buy a home.  The Homestead Exemption is just more icing on the cake.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Here in San Diego, California when you receive you tax bill the assessor has information regarding tax exemption, such as exemption for disable, seniors, homeowners included in with your tax bill. Many homeowners, are asking for property tax reduction since the home that they purchase in 2004-2008 are not as valuable.

Posted by Lorraine or Loretta Kratz, Certified Negotiation Consultants (Crescent Moon Realty, Inc. & Land N Sea Auctions.) about 5 years ago

Gene:  Thanks for the "suggestion."  The Gold Star and the Feature just hit!  As you have said, adding the Homestead Exemption to the other money-savings available... and things really add up.

By the way... you said that a new buyer should take advantage of every monetary option at their disposal.  What if that option is closer to their dish-washer than to their disposal?  Is it still ok to do it?

And yes... do it now.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Gary:  Thanks for the kind words.  And yes, just missing the deadline by ONE DAY can cost a buyer/new owner an entire year of tax savings.  Not a good plan.  And yes, again... knowledge of this pending Homestead Exemption has helped me help many, many buyers earn that savings over the years.  I love the feeling I get from really helping someone.  They love it, as well... LOL.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Lorraine & Loretta:  Asking for a reduction in real estate taxes owed because of a drop in valuation is something many are doing.  What is often easier is to just make sure that the lowered value is reflected in the assessed valuation that is used to compute the taxes.  That accomplishes the same thing, and is much more easily controlled and/or arrived at.

Do you know if the assessed valuations for tax purposes reflect the lowered market valuations ?

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

I use the tax exemption as a tool as well. 

However, what many people don't realize is that if they buy an occupied home, the homestead will automatically grandfather through the year. The above only comes into play if you buy a vacant home.

 

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, a PLR affiliate - TexasRealEstateMediationServices.com) about 5 years ago

Donna:  I will check with Tarrant County and see what's what.  I live fairly close to the Tarrant Appraisal District office, and have been there several times.

I DO know that a homeowner can only have ONE Homestead Exemption home at a time... so if they are selling a home that has it... and closing on an "occupied" home (that the folks have moved out of, obviously) and want it immediately for that one... it can get kind of confusing.  Regardless, it is always best to check with the local taxing authority to make sure.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

We have the Homestead exemption here in Florida as well.  It's a real asset when marketing to 2nd home buyers.

Posted by Chris and Dick Dovorany, Broker/Associate at Premiere Plus Realty ( Homes for Sale in Naples, Bonita Springs and Estero, Florida) about 5 years ago

Chris & Dick:  In Texas, as far as I know, it does NOT apply to second homes... just the primary residence.  Each state may have different ways of doing things, and it is always best to check with the local tax authority.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

This is a big time tool for homeownership and helps to ease the burden of property taxes which are quite high here :).  I just read Donna's comment and I never heard that the homestead was grandfathered, especially since taxes are taken out for the year at closing.  

Posted by Brenda Mullen, Your San Antonio TX Real Estate Agent!! (RE/MAX Access) about 5 years ago

Brenda:  Yes, anything that helps ease the burden of property taxes is a help.  But, then again, if we want the services that come from paying the taxes... the bills need to be paid.  All this is about is not over-paying.

And by the way.  What's this "grand-father" stuff?  In the interests of Gender Equality, it sure better be "Grand-Mothered" as well.  <smile>

But... just because the Title Company goes to the local taxing authority and gets a real estate tax figure to deduct from the seller and credit to the buyer at closing on the HUD-1.. that doesn't mean that that figure cannot be wrong.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Fortunately for us here in Florida, if the home is currently homesteaded, the buyers get the current taxes until the next January first. So, sometimes they are not adversely affected.

Posted by Nan Jester, Realtor, Exit Real Estate Gallery (Exit Real Estate Gallery Jacksonville Beach, FL ) about 5 years ago

Nan:  That's a good thing.  And that way, the figures on the tax proration on the HUD stay the same for the new buyer.  Good news.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Great post!! You laid this out perfectly clearly so people can understand it. 

Posted by Karen Fiddler, Broker/Owner, Orange County & Lake Arrowhead, CA (949)510-2395 (Karen Parsons-Fiddler, Broker 949-510-2395) about 5 years ago

Karen:  Thank you so much for your kind words.  I am so glad you liked it.

My ability to explain things clearly I am sure is a hold-over from my nine years of teaching junior high school hundreds of years ago... much earlier in my career.

I was teaching school just after the alphabet was invented, so I had no choice but to make my explanations simple.  <dorky smile>

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Karen Anne:

Good for the state of Texas for providing this exemption to home owners.  Home owners need all the exemptions they can get.

Posted by Evelyn Kennedy, Alameda, Real Estate, Alameda, CA (Alain Pinel Realtors) about 5 years ago

Great reminder about a wonderful program that can save home buyers their hard earned cash!

 

Posted by Shannon Milligan, Richmond VA Real Estate Agent/Associate Broker, RVA Home Team - Winning with Integrity. (RVA Home Team) about 5 years ago

Karen Anne, You explained this savings so well I am sure some buyers will be calling you to take advantage of this exemption.

Debbie

Posted by Debbie Reynolds, Your Dedicated Clarksville TN Real Estate Agent (Berkshire Hathaway HomeServices PenFed Realty, Your Clarksville Real Estate Professional) about 5 years ago

I believe Donna is right as long as the seller does not port their exemptions with them.

Posted by Joni Bailey, Your Huntsville / Lake Livingston Area REALTOR® (Berkshire Hathaway Home Services - Anderson Properties) about 5 years ago

I was totally confused about the homestead exemption.  I thought it only came into play if a creditor went against the homeowners... does this actually apply to reduce taxes each year?  Sorry, I guess I am confused.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) about 5 years ago

Evelyn:  I agree.  The more we can show additional benefits of home ownership, the more potential buyers will begin to realize how it really is to their benefit to purchase a home.  I am also guessing that Homestead Exemptions like this are typical of most of the States, if not all of them.  

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Shannon:  I agree.  Unfortunately, there is no Homestead Exemption for those renting apartments or homes... and with the prices of homes as low as they are, and with interest rates at an all-time low... buying is an even better alternative to renting than it has been.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Debbie:  Thanks for your very kind words.  But, I wrote this post in such a way that Realtors throughout Texas, and perhaps in other states, can share this post, and show their buyers one more benefit of buying a home.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Joni:  I am not sure that I understand what you are trying to say.  If you are saying that a home owner who is moving can take that same Homestead Exemption with them... well, the Exemption stays with the home.  They can apply for another different Homestead Exemption on the next home they purchase.

It is different from something like the mineral rights to a home, which the seller may negotiate to retain the right to take those mineral rights with them.  And then, if the mineral rights are included with the home they purchase... they could end up with two sets of mineral rights... one for the home they sold, and one for the home they purchased.  It does not work that way with Homestead Exemptions.

If I have understood you incorrectly, let me know, and we can figure it out.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Joan:  This can get pretty confusing.  That is why I really tried to simplify my explanation I made in my post.  To my knowledge, the Homestead Exemption is simply the local taxing authority "exempting," or not counting, a portion of the home's value when they figure out the real estate taxes that a seller owes... which means they are being taxed on a smaller home-value amount.

It has nothing to do with any creditors.  And yes, once the current home owner, as long as they are living in that particular home (which then makes it their "homestead...") once that home owner applies for, and is granted that exemption, it remains in force from year to year.

At least that is the way it is in Texas.  I am guessing it might be the same in other states, but I do not know that.  As you know, every stay may have its own way of doing things.

Please, if I have bungled my explanation, or if you are still unsure, please ask, and we will figure it out.  Ask away.  The former teacher in me is glad to try and help.

By the way... I don't remember if I have said anything since noticing your new profile picture, but it is very nice.  I like it.  Have a great week.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Karen - An interesting closing tool and one that I had not considered.  A little money saved is better than none.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) about 5 years ago

Christine:  Even if it's only just a little money, just think how much it might mean if you donated that amount each month to a local food bank, or a veteran's organization if your, or any family is well-off enough to not really need it.

But for those who DO need everything they can get... it can buy them food for a week... or pay for other things they could not otherwise afford.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Hello Karen Anne -- it's all in a day's work to share with our clients every opportunity that is available to them - nicely presented and definitely feature-worthy.   

Posted by Michael Jacobs, Los Angeles Pasadena Area Real Estate 818.516.4393 (Coldwell Banker Residential Brokerage) about 5 years ago
Karen Anne - great reminder and tool of course to use when it comes to buying a home the last quarter of the year. In addition, we in Florida benefit for additional exemptions such as disability, veterans with a disability of at least 10%, widower exemptions and much more.
Posted by Petra Norris, Realtor, Lakeland FL Homes for Sale (CDV TransAtlantic, Inc.) about 5 years ago

Many of our local towns offer residential exemptions to encourage home ownership.  On a statewide level, there are also incentives and exemptions for seniors and persons with disabilities.  It's a shame when a home owner hasn't applied for the exemption and for a new owner to have to wait for a full fiscal year until they can apply on their own.  The tax savings by listing a home with a residential exemption, versus one that doesn't have the exemption may only be a few thousand dollars, but it's a HUGE difference in the mind of a prospective buyer.

Posted by Virtual Realty Consultants, Making the American Dream a Reality (Virtual Realty Consultants LLC) about 5 years ago
I did a re-fi this year and received paperwork on it shortly after. Guess I need to consider doing this. Thanks Karen.
Posted by Karen Crowson, Your Agent for Change (Coldwell Banker Residential Brokerage) about 5 years ago

California - Protects up to $75,000 for single people, $100,000 for married couples, and $175,000 for people over 65 or legally disabled. I think it is automatic as well, even at that your post is worth the knowledge in gold!

Posted by Fred Sweezer Sr., Certified Home Inspector (Hud Certified 203K Consultant) about 5 years ago

Great advice Karen Anne, especially for the many who want to wait until after the first of the year to make a decision.

Posted by Bob Crane, Forestland Experts! 715-204-9671 (Woodland Management Service / Woodland Real Estate, Keller Williams fox cities) about 5 years ago

Hi Karen, thanks for providing one more reason for these buyers to get off the fence.

Posted by Bob Miller, The Ocala Dream Team (Keller Williams Cornerstone Realty) about 5 years ago

Here in Alabama, where the property tax is already very low, Homestead gets you a reduction of about 50%.

 

Posted by Travis "the SOLD man" Parker; Associate Broker, email: Travis@theSOLDman.me / cell: 334-494-7846 (Team Linda Simmons, Enterprise, AL 36330) about 5 years ago

Thanks for the reminder - I just found out about this recently, and need to call my mom about it! LOL

Posted by Lynda White, Admin. Mgr., Keller Williams Realty (Bluegrass Homes & Farms Realty, Agent Know How) about 5 years ago

You know you had me puzzled for a bit, Karen Anne!  I finally GOT it!!  Jeesh!  Well done!

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) about 5 years ago

Gene:  Not to worry, my friend.  Rarely a day goes by when I don't "puzzle" myself!  Ya get used to it after a while.

Thanks for your kind words.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) about 5 years ago

Our Homestead Exemption here is used to protect "a homestead exempt from attachment, execution and forced sale, not exceeding one hundred fifty thousand dollars in value" It does not affect taxes. I used to live in texas, and I remember my exemption I had there.

Posted by Jon Quist, Tucson's BUYERS ONLY Realtor since 1996 (REALTY EXECUTIVES TUCSON ELITE) about 5 years ago

What a great idea to promote homeownership and pride and save a little money as well, wish Ct had such a program.

Posted by David Popoff, Realtor®,SRS, Green ~ Fairfield County, Ct (DMK Real Estate ) about 5 years ago

Karen Anne, this is a huge benefit of home ownership in Indiana as well!  The median sale price of a home selling in north Lafayette is under $60,000!   The Homestead exemption is $45,000 and a mortgage exemption adds another $3,000 plus the state adds a supplemental homestead credit on top of that!  We have a cute little 700 square foot old National home listed and the taxes are just over $200 a year! 

Yes, this is a great benefit of homeownership, but on the other hand the rental owners are now paying a STEEP increase in property taxes and it has forced many landlords to raise their rents.       BW

Posted by Sharon & Bruce Walter, West Lafayette homes for sale (Keller Williams Realty Lafayette, IN) about 5 years ago

Great post!  It took me like 30 minutes to scroll down to the comment area though since you have so many comments.  I think I need to schedule time to comment on your posts !!  The scroll to the bottom could be a long one :-)

Posted by John & Irma Nelson, San Antonio Real Estate Agents - San Antonio Homes (San Antonio Real Estate Broker/Agent with Get It Sold Realty) about 5 years ago

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