Homestead exemption

A homestead exemption is a provision of law which generally serves two main purposes.

The first purpose is to exempt a family home from forced sale by creditors, other than the mortgage holder, holder of a "mechanic's lien" (a person who performs work on a home, such as a company who remodeled the kitchen), or a taxing authority for unpaid property tax.

The second purpose is to provide a tax break on the appraised value of the home, in order to lower property taxes.

Generally, a person can have only one residence declared as a homestead for this purpose.

Example

In Texas, the homestead exemptions are as follows:

• Only one residence can be claimed as a homestead.
• A homestead is exempt from forced sale by creditors other than those listed above. The value of the homestead is unlimited, but the acreage is limited to 10 acres within the limits of a city or 100 acres outside the limits of a city (a family can increase the latter to 200 acres).
• A homestead cannot have its appraised value increase annually more than 10% of the prior year's value, plus the value of any improvements made during the year. However, this does not apply in the first year, as the appraisal is allowed to be increased to fair market value upon sale of a home.
• The appraised value is subject to numerous exemptions, key ones include 1) a $40,000 exemption for school property tax purposes, 2) a $5,000 exemption for county property tax purposes, 3) an additional $10,000 exemption for school property tax purposes if one owner is 65 or older, and 4) a 100% exemption for a disabled veteran.