Home Sweet Homestead

I have been getting lots of questions about homestead tax lately. People want to know where to claim it on their 1040, how much money they will get back on their taxes from "homesteading", whether homestead taxes are deductible...there just generally seems to be a lot of confusion.

First, a homestead is a classification given to a piece of property you own. Generally it means that a particular piece of property is your principal and primary residence, i.e. your homestead.

Second, there are no homestead taxes. Rather, the designation of a piece of property as your homestead enables you to 1) exempt a portion of the property's value from local real estate taxes and 2) limit the appreciation on your assessed value to a specified percentage each year. In highly appreciating real estate markets this is the biggest value to the homestead exemption. By capping the annual appreciation your property taxes are kept from running out of control as property values in your area go through the roof.

Third, IRS has no part in your homestead exemption. However, in tax matters where a principal residence argument is being made or in which state income taxes depend on the state of residence the location of your 'homestead' can play a key role.

Fourth, homestead exemptions are granted at the county level. The county property appraiser will usually specify a list of documents or criteria that helps them insure you are in fact using the property as your principal residence. For more information on Manatee County homestead requirements visit www.manateepoa.com. Sarasota County residents can visit this site.

One final note. Home buyers should be careful when trying to estimate property taxes on a potential real estate purchase. If past property taxes are used as a guide and the property has been homesteaded for a long period of time the taxes will be fairly low due to the annual appreciation cap.The homestead exemption does not carry from one property owner to another when that property changes hands. Expect the tax assessor to revalue the property closer to current fair market value after the sale takes place.

If you have questions about homesteading property give me a call.

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