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What Is A Property Tax Exemption? Finding And Claiming Property Tax Benefits

7-Minute Read
Published on January 24, 2024
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Homeownership means having more space, calling the roof above your head your own, no more reporting to a landlord and … more taxes? Unfortunately, buying a home can bring you into a quagmire of tax implications if you don’t take advantage of the benefits homeowners receive.

Property tax exemptions are one of these benefits because they help lower your tax obligation to your city or county. These exemptions can reduce and even wipe out your property tax bill. Here’s how to tell if you qualify and how to file for exemptions with your municipality.

What Is A Property Tax Exemption?

A property tax exemption is a reduction or elimination of property taxes on a specific property or for a particular group of property owners. Property taxes occur at the local level, meaning city and county governments charge this tax based on your property's assessed value. However, an exemption allows eligible property owners to pay lower or no property taxes on their qualifying properties.

Religious organizations and governmental entities don't pay property taxes due to their eligibility for exemptions. Likewise, specific property tax exemptions are for homeowners who receive a value assessment with a corresponding tax bill from their local government.

Fortunately, most municipalities offer tax exemption programs to help real estate owners lower or eliminate their property tax bill. Of course, while property tax exemptions (also known as real estate tax exemptions) may help you garner thousands in prospective tax savings, not all individuals will be eligible to capitalize on them.

Who Is Exempt From Paying Property Taxes?

Certain properties, individuals or organizations may qualify for property tax exemptions. These may include religious or government properties, senior citizens, qualifying veterans, low-income individuals and people with disabilities. Depending on your location, there may be additional property tax exemptions available.

Local governments levy real estate taxes, meaning they may occur on a city or county level, depending on where you live. In addition, the tax rates and assessment calculations vary from state to state. As a result, it’s crucial to research your area to understand who is charging property taxes and how to file for an exemption.

Property exemptions are common because they extend to homeowners with varying characteristics, including age, income level and marital status. While eligibility varies by state, many homeowners can qualify to help lower their property taxes.

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Tax Exemptions Vs. Deductions

A tax deduction and a tax exemption are both mechanisms that can reduce your taxable income, but they operate in slightly different ways. A tax deduction reduces the amount of income or property value that is taxed. In other words, you subtract the deduction from the total before calculating the taxes you owe.

For example, say your property value is $300,000, and your city charges a 1% property tax rate. A $50,000 tax deduction would apply to your property value before calculating the tax. So, the 1% rate would apply to $250,000, resulting in a $2,500 property tax bill.

Deductions for property taxes also apply at the federal level. Specifically, the IRS allows homeowners to deduct what they paid in local property taxes from their taxable income, thereby lowering their owed taxes. This deduction maxes out at $10,000. Plus, property taxes are not the only way homeowners can save money on federal taxes. There are many benefits to homeownership, including the mortgage interest deduction.

On the other hand, a tax exemption is a portion of tax you don't have to pay. It applies directly to your tax bill and can lower your owed tax by up to 100%. For example, Texas law gives veterans with disabilities a 100% tax exemption if they're unable to work. This exemption eliminates property tax obligations from this group.

Types of Property Tax Deductions

Certain properties and individuals qualify for property tax exemptions based on their specific situation and status. Here’s a closer look at these exemptions and the individuals that qualify for them.

Disability Exemptions

Individuals who have a disability may be eligible to receive tax relief on a portion of their property taxes, with specifics of underlying programs again varying widely by state. Research is vital to understand your eligibility, depending on your location.

For example, Michigan gives veterans with disabilities and their surviving spouses a 100% exemption from property taxes. Obtaining this exemption entails submitting a certificate from the United States Department of Veterans Affairs (VA) regarding the disability.

Disability exemptions usually scale with the homeowner’s ability to work and care for themselves. As a result, a homeowner with a disability who is still able to work may receive a partial property tax exemption.

Homestead Exemptions

A homestead exemption reduces the taxes owed for a primary residence. Most states offer a homestead exemption, allowing homeowners across the country to shelter their property from taxation. Additionally, some states extend this exemption to situations involving the death of a homeowner's spouse. This aspect of the exemption prevents the surviving spouse from losing the home due to unpaid debts or taxes.

Depending on the state you live in, you may be eligible to exclude either a flat-rate amount of your home's value from property tax assessments or a percentage of its overall value. For example, residents of the Miami-Dade area can receive a $50,000 exemption. On the other hand, Pennsylvania doesn't provide homestead exemptions at all.

Remember, vacation and investment properties don't qualify for homestead exemptions. Because you can only have one primary residence at a time, this exemption will only apply to one property per year for tax purposes.

Low Income Exemptions

Some municipalities give an exemption to residents with incomes beneath a certain threshold. Research is necessary to find out if you qualify.

For example, the city of Detroit knocks off a specific percentage of property taxes based on income level and household size. The exemptions differ based on your situation. While a household of two with an income of $24,000 will receive a 100% exemption, a household of three with an income of $32,000 will receive a 25% exemption.

Senior Exemptions

States frequently provide tax exemptions for homeowners once they have reached a certain minimum age. The specifics of these programs vary by state and may come with various income restrictions and residency requirements.

For example, Florida gives a $50,000 senior exemption for homeowners age 65 and older. However, your income must be below $35,168 to qualify for this exemption.

Veteran Exemptions

Military veterans and active service members usually qualify for various tax benefits, including property tax exemptions. The VA provides many benefits, like VA loans for disabled veterans and tax exemptions. Like the other exemptions on this list, the specifics vary depending on your city and state.

Municipalities often tie veteran exemptions to disability. For example, veterans living in Minnesota with a 100% permanent and total disability rating can exclude $300,000 of property value from their taxes. Additionally, veterans with a 70% or higher rating for a service-related disability can exclude $150,000.

How To Get Property Tax Exemptions

Homeowners interested in checking their eligibility and applying for property tax exemptions can follow these steps:

  1. Research property tax exemptions: First, you’ll need to check with your local government about the exemptions available. You can reach out to your city tax assessor, county tax collecting office, state revenue department or the VA to get started. These entities can provide details on exemptions and how to apply for them.
  2. Decide if you’ll itemize: Some property tax exemptions require you to itemize your deductions to take advantage of them, while others don’t. Because itemizing has different implications, such as requiring more documentation for deducted expenses, it’s crucial to understand how you’re going to file as early in the year as possible.  
  3. Consult a tax professional: Understanding every detail of the exemptions you qualify for and how they impact your filing approach can be a challenge. For instance, itemizing might not be as profitable of an approach, even if you do receive a property tax exemption that way. Consulting a tax professional can help you maximize your tax savings when you file this season.
  4. File your taxes: When you’re ready, file your taxes with your municipality. While taxes are due by April 15 every year at the state and federal levels, the filing deadline can differ locally. To claim your exemptions, you’ll need to provide the relevant documentation and submit your return in time.

Property Tax Exemption FAQs

The answers to the following frequently asked questions can help clear up remaining uncertainty about property tax exemptions.

Are seniors exempt from property taxes?

Many states offer property tax exemptions for seniors. Typically, qualifying means meeting specific age and income requirements, although the criteria vary by state and county.

Are veterans exempt from property taxes?

Veteran exemptions from property taxes usually involve a level of disability to qualify. In addition, different levels of disability can qualify you for different kinds of exemptions in the same municipality. As a result, it’s crucial to check your state and local statutes regarding veteran exemptions. 

Which organizations are exempt from paying property taxes?

Nonprofit and religious institutions are exempt from paying property taxes, as are governmental entities and properties.

The Bottom Line 

A property tax exemption provides relief from property taxes for eligible individuals and groups, including religious organizations, governmental entities, seniors, veterans and homeowners with disabilities. These exemptions directly reduce or eliminate property tax obligations, promoting fairness and easing financial burdens.

Understanding the distinction between exemptions and deductions is crucial, with exemptions directly lowering the tax amount owed. Various categories such as disability, income level, age, and military service determine eligibility. Additionally, thorough research and professional consultation are essential for homeowners seeking these benefits for financial planning and tax reduction.

Fortunately, property taxes are only one avenue providing homeowners with financial relief. If you need funds, you can tap your equity through a cash-out refinance to meet your financial needs or reinvest in your home through renovations and repairs.

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Headshot Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is an experienced financial writer. In addition to being a contributing writer at Rocket Homes, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.