Homestead Laws, Taxes and Exemptions and the end of the Homestead Act

Individual State Homestead Laws

Most homestead laws and homestead tax exemptions are specific to each state in the Union. Individual state governments may choose to honor current federal exemptions or establish laws that prohibit debtors from claiming any exemption provided under federal bankruptcy law. So it is very important to understand your states laws.

More than 40 states have laws that protect a homestead. Click on the links for a quick summary of each states laws. Alabama, Arizona, Arkansas, California, Florida, Georgia, Idaho, Illinois, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Vermont, Washington, West Virginia, Wisconsin and Wyoming.

If your state doesn't show up in this list, search for Homestead Laws relative to your state.

What do Homestead Laws do?

Many homestead laws exempt a portion of a primary residence from property taxes and creditors. The protections generally apply to people with lower incomes. Some of the laws protect you from problems that arise from the death of the homeowner or their spouse.

In general, homestead laws exempt a specific amount of money in the $15,000 to $25,000 range from tax & creditors. This doesn't protect much of the value of the home, but it is something to remember in case you end up declaring bankruptcy or have a home repossessed. Contact legal professionals for assistance with your specific states laws.

The laws vary from state to state, but generally provide protections:

  • Preventing the forced sale of a home to meet the demands of creditors, usually except mortgages, mechanics liens, or sales to pay property taxes
  • Providing the surviving spouse with shelter
  • Providing an exemption from property taxes on a home
  • Allowing a tax-exempt homeowner to vote on property tax increases to homeowners over the threshold, by bond or millage requests

Bankruptcy

The federal bankruptcy law protects 11 U.S.C. § 522(p)(1) protects $125,000 of property. This includes a residence, a homestead, a cooperative and even a burial plot. Note a few states protect ALL of your primary residence- see this site for details: https://www.assetprotectionplanners.com/planning/homestead-exemptions-by-state/

Homestead Tax Credits

Various states have tax credits for a primary residence or homestead. Delaware, Pennsylvania and Rhode Island have no laws related to homestead exemptions. This site provides key information about each state : https://finance.zacks.com/states-homestead-tax-exemption-3925.html

Residential Renewable Energy Tax Credit

For those thinking of investing in solar energy systems, the Residential Renewable Energy Tax Credit is still place through 2022. Specifically, from Dsireusa.org:

Solar-electric property

  • 30% for systems placed in service by 12/31/2019
  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022
  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
  • The home served by the system does not have to be the taxpayer’s principal residence.

Solar water-heating property

  • 30% for systems placed in service by 12/31/2019
  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022
  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
  • Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
  • At least half the energy used to heat the dwelling's water must be from solar in order for the solar water-heating property expenditures to be eligible.
  • The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.
  • The home served by the system does not have to be the taxpayer’s principal residence.

Federal and State Tax Credits, State Homestead Exemptions, Federal Homestead Exemption and Residential Renewable Energy Tax Credit. Links to each states homestead related laws.Federal Homestead Act information.

How to lower your taxes immediately and in the future

The cost of working with a professional tax preparer may seem high. Using a professional can help you get all real deductibles on your taxes. Some possible example deductibles and tax deferment/avoidance options are listed here.

Retirement

  • Maximize your 401k or 403b through your job if you have the option. When you get a raise, put it into your 401k/403 until you are at your max. That way you don't feel the “loss” of funds – your income feels the same but you are saving more.
  • Invest in IRA or Roth IRA up to the max for that calendar year if you can.

General Ideas

  • Ensure you are writing off your mortgage expenses
  • National Guard members who travel more than 100 miles and stay overnight at their own expense may be able to deduct those expenses.
  • For those with a side job, consider upping your main W4 deductions so that you don't get hit with a bit tax bill surprise because of the extra income.
  • If you are moving/selling your home, research the home sale exclusion
  • Track your charitable contributions
  • You might be able to deduct job hunting expenses
  • Time your property tax payments to align with your expenses. You can pay in Dec or Jan so you can double up if you need to.
  • Check if you can use the Earned Income Tax Credit

Self Employed/Small Businesses/Farms

  • Remember if you are self-employed and you pay 100% of your social security taxes, you can probably deduct 1/2 of the amount you paid
  • If you have a home office DEDUCT it
  • If you are self employed or an LLC make your investments/buys throughout the year, not all at once at the end of the year
  • Pay your quarterly taxes on time, avoid those late fees, they add up

Health

  • Paying for healthcare HSA, HRA, FSA and/or child care using pre-tax money.
  • You can move HRA or FSA funds one time to a personal HSA
  • Don't let your health spending account expire. Some have a use it or lose it rule, so watch the details and use it up. Glasses, a quick dental visit or contacts can all use up end of year money.

Education

  • Invest in education or certifications that will provide you a clear value. It is something that will be YOURS for your entire life.
  • You can probably take a tax credit on 100% percent of the first $2,000 spent on qualifying college expenses.
  • There is also the Lifetime Learning Credit or American Opportunity Tax Credit that you might qualify for.
  • Some student loan expenses may be deductable
  • Some states allow you to set aside funds in a 529 account for college/education expenses. The money isn't pre-tax, but it grows tax free. It can be used tax free for college/university expenses.

Homestead Act

Looking for free land through The Homestead Act? You're out of luck. The Homestead Act of 1862 was repealed in 1976. It allowed people to be granted up to 160 acres of public land, if they lived on the land a certain amount of time. It is no longer law.

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Homestead Law References/Links

http://statelaws.findlaw.com/property-and-real-estate-laws/details-on-state-homestead-protections.html

https://www.nolo.com/legal-encyclopedia/federal-bankruptcy-exemptions-property.html

https://www.motherearthnews.com/homesteading-and-livestock/declaration-of-homestead-zmaz82jazgoe

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