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Types of Property Tax Exemptions

Jul 08, 2020 by Marc Rapport

Real estate tax breaks are like the real estate business itself: they’re very local. No matter where you live, there are deductions, exemptions, and credits there for the taking, and, like the tax rate, they vary greatly by location.

Of course, some are offered to everybody who files a return with the IRS, such as the mortgage interest deduction from your income tax. Others are very local or specific, such as tax abatements offered to investors, developers, and residents who commit their dollars to helping revive urban neighborhoods.

Taxation is an uneven affair. Each jurisdiction, from townships to cities to counties to states, has its own property tax rules as they raise revenue for schools, public safety, roads and recreation.

The county will send the appraiser, and then it’s pretty much up to you. After all, the tax bill will come on its own, but you typically have to go find each property tax break on your own.

Here we highlight some of the most common property tax breaks in hopes it helps you get started on your own search.

Tax savings offered nationwide

The Lincoln Institute says 26 states have tax relief programs available to nearly every property owner. They provide an average of 12.5% reduction in property taxes, but in a fourth of the states with such a program, the median property tax cut was as high as 25%.

That can account for a lot of savings. For instance, New Jersey has an average property tax rate of 2.44% and average tax bill of $7,800. That’s among the highest. The national average property tax rate is 1.08%. But so much depends on where you live. High-end public school districts, for instance, often come with a high property tax bill and high appraised value for each home.

Meanwhile, the National Association of Realtors says the U.S. median property tax paid is about $2,000 annually, or about 1% of the $200,000 median home value. “Savings from exemptions will vary widely depending where you live, the value of your home, and what you qualify for. A 15% exemption would save about $300,” the NAR says.

So, let’s take a look at the major categories of tax savings for that principal residence.

The homestead exemption

The homestead exemption is one of the oldest and most widespread of property tax breaks. They’re granted by statute or constitution in many states and while they vary in details, they have the same bottom line: keeping primary owners in their primary residence, especially a senior citizen or surviving spouse.

A full or partial exemption can reduce your property tax by lowering the assessed value of the residence homestead, and it can be used to prevent creditors from forcing a home to be sold, except typically for foreclosure or failure to pay property taxes.

Exemptions vary widely but typically are extended only to a primary residence. Sometimes you have to file a claim for it; other places it’s automatic.

The size of the break varies widely, too. For instance, in South Carolina, the first $50,000 fair market value of any taxpayer’s primary residence is exempted from all property taxes. If the primary residence is valued at $50,000 or less, it is exempt from all property taxes.

Florida’s homestead break, meanwhile, protects up to 160 acres outside a city and a half-acre in town and provides a property tax exemption of $25,000 from city, county, and school assessed values. Widows, widowers, and seniors also get certain breaks; there’s also a disability exemption.

Property tax relief for the disabled veteran

Many states offer property tax exemptions and other breaks to former military service people. Most are limited to the disabled veteran. The Lincoln Institute says that 31 states provide property tax exemptions or credits for service-related disabilities, but only 15% of veterans typically qualify.

The institute’s report says there are 18 states that restrict the exemption to veterans who have a 100% disability rating, but those veterans are typically granted an exemption amount equal to their full property tax bill.

Veterans United provides an online list of service-related property tax-bill breaks from across the country, including the percentage exemption.

Here’s the site’s info, for instance, from the Lone Star State:

“In Texas, a veteran with a disability rating of 70-100% percent may receive a $12,000 property tax exemption. Veterans with a full 100% disability rating are fully exempt from property taxes. 50-69% may receive a $10,000 property tax exemption. 30-49% may receive a $7,500 property tax exemption. 10-29% percent may receive a $5,000 property tax exemption."

The senior citizen property tax exemption

People over 65 should check for any senior property tax exemption they earn because of their age. There may be income restrictions for these, but your local taxing authority can fill you in on that.

The breaks for seniors vary widely. For instance, the senior citizen exemption for New York is 50% of appraised value. To qualify for that, you have to be 65 or older and have a household income of $29,000 or less in 2019. That’s worth qualifying for, since it can cut your property tax bill in half.

Even better? The Houston area. In Harris County, Texas, being 65 or older gets you $160,000 and then another 20% off your home values for the 2019 tax year. And that’s in a larger area where many older homeowners don’t have to pay property taxes at all.

Not so great? Boston provides just a $1,500 "elderly exemption” tax break that you can’t even claim in 2020 if it reduces your tax bill below 2019’s. Plus, you must have lived in Massachusetts for a decade or owned that particular property for five years. And, married couples who make more than $37,137 don’t qualify either.

The disability exemption is widely offered

Twenty-three states offer exemptions to disabled homeowners, the Lincoln Institute says, usually targeted at two distinct groups: disabled or blind. The programs also typically require beneficiaries to be totally and permanently disabled. The institute’s research found that 2.3% of homeowners in those states were eligible and their median property tax cut was 21%.

Each state does its own thing with that tax code section. For instance, in Ohio, qualified disabled individuals can use the homestead exemption to take as much as $25,000 off the market value of their property in the form of a tax credit.

And Tennessee requires some definite proactivity. Since 1973, the Volunteer State has operated a tax relief program for low-income elderly and disabled homeowners, as well as disabled veteran homeowners or their surviving spouses. It’s funded by the General Assembly, and tax collecting officials, including on the county level, process each exemption application, resulting in more than 100,000 filers a year getting the tax savings.

Renting houses and cows: Landlords and farmland

Property tax considerations for residential landlords and for farmland are two whole other fields. For instance, in South Carolina, a primary residence is assessed at 4% and other real property at 6%, and you have to make that clear when you buy a new home or you’ll be charged the higher rate.

And in many places, agricultural land is taxed at lower rates, and what constitutes land being used for agriculture can lead to some interesting definitions of “farm”, including the “rent a cow” provision in Florida that by some estimates has saved Sunshine State homeowners a billion dollars a year in property taxes.

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