If you are a homeowner, you must be fully aware of the homestead exemption. Many state lawmakers are seeking to enact residential property tax relief. There are currently two options. Targeted tax breaks and across-the-board tax cuts for taxpayers. What does that mean for you? The experts at SmarTax are here to break it down for you. Located in Pembroke Pines, we take pride in being the best tax accountant near me.
Let’s Break It Down
Across the United States, over 40 states have chosen to achieve across-the-board tax relief by providing a homestead exception. Is this a good choice? The nature of residential property taxes is regressive. What this means it they require low-income taxpayers to pay more of their income in taxes than wealthier taxpayers. In a recent report, the poorest twenty percent of Americans paid 3.6 percent of their income in residential property taxes. This is compared to 2.7 percent of income for middle-class taxpayers and 0.7 for the wealthiest.
Why are these taxes regressive? The answer is more home values are much higher as a share of income for low-income families versus wealthier ones. Property taxes are based on home values rather than income. This results in a disconnect from “ability to pay” considerations. If a taxpayer becomes suddenly unemployed, they will find that their tax bill is unchanged, even though they are no longer able to pay it. This will have no effect, unfortunately. A tax accountant near me can help with any questions you may have.
How Does Homestead Exemption Work?
These exceptions reduce property taxes for all homeowners across the board. It does so by sheltering a certain amount of a home’s value from tax. They are a progressive approach to tax relief. Let’s look into a flat dollar and percentage exceptions.
Flat dollar exemption is calculated by excepting a specified dollar amount from the value of a home before a tax rate is applied. This is more beneficial toward low-income homeowners. They represent a larget share of property taxes.
Percentage exemptions provide the same percentage tax cut to homeowners at all income levels. This form of exemption is also progressive since an across-the-board cut in a regressive tax will be most helpful to low-income taxpayers, however, it is far less effective at targeting relief to poor taxpayers than are flat exemptions.
Who Can Take Advantage of These Exemptions?
- Exemptions provide no benefit to taxpayers who rent their homes. While expanding homestead exemptions to include rental properties would be administratively difficult, lawmakers should recognize this fact and consider enacting a property tax “circuit breaker” to accompany any relief provided via homestead exemptions.
- Many states also treat non-elderly taxpayers less generously than the elderly. Some states offer homestead exemptions only to elderly residents, while others give higher benefits to the elderly. The desire to extend property tax relief to elderly taxpayers is laudable since the elderly are more likely to be “property rich” and “cash poor.”
- One sensible limitation on homestead exemptions actually helps to target these tax breaks: the use of income limits. Several states restrict eligibility for the exemption to taxpayers earning less than a specific income level or homes worth less than a set amount.
Call Us Today
We have all the information regarding homestead exemption. The professionals at SmarTax want to ensure that you have all the information you need going into tax season this year. It is essential to be aware of all tax laws as they may affect you. For further information call or contact us today, Pembroke Pines. We offer the best tax accountant near me.