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Why you need to file a Homestead Exemption

Right after you purchased your home this year, you should have applied for your homestead exemption.  Not to worry if you didn’t, because it isn’t too late.  The information on how to file can be found on your county’s website.  In our area, it is either MCAD or HCAD. 

Once you file for Homestead, you are protected from most liens placed on your Homestead, that would be able to foreclose on your property.   You can only have one homestead, so it is not allowed on investment properties.  The only liens that can be filed on a homestead vested property are IRS liens and Property Tax liens. These entities can actually foreclose on the property.  In some circumstances Homeowners associations can place a valid lien of foreclosure.

Besides the protection from foreclosures that the homestead offers, are two other major benefits.  One is a slight reduction in appraised value from some of the taxing entities.  The other benefit can save you thousands of dollars because it caps your yearly appraised value from being raised more than 10% each year. This is the most valuable as far as savings each year, BUT, it is also takes the longest to go into effect.

Now this part gets a little tricky but I will try to simplify it as much as possible:

If you have closed on your home this year, 2022, your 10% cap will not go into effect until  January 1, of 2024. This is because you have to wait a full year from January 1 of 2023 to be eligible for the 10% cap. Simply put, your taxes you pay at the end of 2023 will have no cap and could be whatever the taxing authorities feel is reasonable.

Most homes purchased this year have sold for much more than the certified value of last year’s taxes.  For example you may have purchased a home valued for taxes at the time of closing for $300,000, but you paid $450,000 for the property.  Most likely the $450,000 will be what you pay on at the end of 2023.  Years after that, starting in 2024, you will have your 10% cap on the value each year. However, for 2023 taxes, due at the end of 2023, beware that your taxes will, most likely, be significantly higher than the previous year.  In some cases, I have seen them go up as much as 50% or more.

Another “beware buyer” is when you closed, what were the taxes prorated on?  The problem is that the title companies base the prorated taxes at closing on the PREVIOUS year’s certified value.  That is the only real number they have until March/April, when new proposed values are placed on properties.  And, based on the exceptional rise in values this year, the taxes will be more than what was prorated at closing.  This is why, as a buyer, you should try to get the parties to agree to prorate from the latest value, instead of last year’s.  This can only be done, however, after the proposed values have come out.  Before the March/April release, you WILL have to use the previous year’s value.

One big problem is that you sign a document at closing saying that if the seller (or you) owe more than was taken, you are responsible to contact the other party and ask for the difference. And, I would say, that is going to be difficult, at best.  In previous years, the amounts have been negligible, but this year has seen homes appreciate as much as 20%-30%. Therefore the difference at the end of the year when YOU, the buyer pay the entire year’s taxes, could be thousands of dollars and YOU are the one who tracks down the other party!

There are other deductions you can get, so look into the tax laws and check out – especially if you are a senior – over 65. 

I can only hope that this gives you some insight into what to do IF you were not lucky enough to have an agent who took care of a lot of this for you.  Real estate can be quite complex and there are things that many agents don’t know if they haven’t been trained in all aspects of the business.  At Corcoran Ferester, both our franchiser, Corcoran and our Ferester Company, make sure our agents are experienced in all of these aspects and others, in order to serve our clients with exceptional service.

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