Your home may be one of the most valuable assets you own in your entire life. However, it’s also one of the most expensive on an ongoing basis. You have to pay your mortgage, insurance, property taxes, maintenance costs and — in the event it’s a condo — even homeowners association fees. But what is a homestead exemption?
Relief From Property Taxes
That’s why it’s good to know that a homestead exemption can help contain some of those expenses. According to Investopedia, a homestead exemption is a regulation that provides homeowners with ongoing property tax relief. Depending on the state you live in, your primary residence is only taxed on the amount of your home’s value minus the exemption. So for example, if your home is worth $300,000 and you live in a state with a $50,000 homestead exemption and a one percent property tax, you’d pay one percent of $250,000 — which is $2,500. Note that the exemption only applies to the portion of your home’s value in which you have equity.
Protection From Creditors
A homestead exemption also provides some protection from creditors under certain circumstances. If your spouse passes away and the resulting financial situation brings creditors to your door, or if you file for bankruptcy, an exemption allows you to claim a certain amount of equity in your home as exempt from debt collectors.
Homestead Exemption in California
In California, everyone who owns a home and lives in it is allowed to claim a homestead exemption, as SFGate reports:
- Single homeowners receive a $75,000 equity exemption.
- A head of household receives a $100,000 equity exemption.
- Seniors over 65, physically disabled individuals and those who earn less than $15,000 per year receive a $175,000 exemption.
When to File a Homestead Declaration
Homestead exemption in California is automatic, so you don’t necessarily have to file a homestead declaration with your County Clerk. However, if you do file it, your homestead isn’t lost after your home sells — whether that’s involuntarily or voluntarily. Moreover, if you file a declaration, your proceeds from selling your home are protected for six months after the sale. For these reasons, it’s wise to file a homestead declaration if you have equity in your home and serious financial problems.
For up-to-date news and services from a top Los Angeles mortgage broker, contact our experts at Peak Finance. With the Peak Corporate Network backing you, the sky is the limit. You can rest assured we will turn the burden of homeownership into something you can finally enjoy.