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You thought your mortgage should stay the same yearly, but property taxes can drive up your monthly payment on your home beyond what you thought you signed up for.
Luckily, there are smart homeowner moves you can make, or even as a homebuyer, to maximize savings. Often, these opportunities to lower property taxes fly under the radar.
Unless you know exactly how to apply for and leverage these benefits, you could continue paying property taxes at the rate set by your state, city, or county.
Here's what you need to know about property tax exemptions and breaks that could help you lower your tax bill this year.
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Homestead tax exemption
The homestead tax exemption allows homeowners to deduct either the percentage value or cash amount of their primary residence from property taxes, helping them get ahead financially. Many exemptions are offered specifically to homeowners of a certain age or status, such as seniors or veterans.
Veterans property tax exemption
Many states offer property tax exemptions or reductions for eligible military veterans. These benefits typically lower the taxable value of a veteran's primary residence, reducing their annual property tax bill.
The amount of the exemption can depend on factors such as disability status, income, or whether the veteran served during wartime. In some states, the surviving spouse of a qualifying veteran may also continue to receive the exemption.
Personal exemptions
Some states and local governments offer property tax exemptions to individuals based on personal status, such as age, income level, disability, or veteran status. These are often called personal or individual exemptions because they're tied to the homeowner's personal circumstances rather than the property itself. By reducing the assessed value of the home, these exemptions lower the amount of property tax owed each year.
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Head of family exemption
Some states offer a property tax exemption for homeowners who qualify as the head of a family or household. This exemption reduces the taxable value of a primary residence, lowering the annual property tax bill. To qualify, the homeowner typically must live in the property as their main home and provide financial support for dependents, such as children or other family members.
Relief programs
Property tax relief programs are designed to help homeowners lower their annual property tax payments or defer them temporarily. They're usually targeted at individuals who might face financial strain, such as seniors, low-income residents, disabled persons, or veterans. Relief can take several forms: exemptions, credit, deferrals, special relief programs connected to natural disasters, economic hardship, or pandemic-related impacts.
Disabled veterans real estate tax exemption
Many states and local governments provide property tax exemptions or reductions for veterans with service-connected disabilities. These exemptions reduce the taxable value of the veteran's primary residence, which lowers the annual property tax bill. This real estate tax exemption can also apply to the surviving spouses of deceased veterans.
Mortgage interest deduction
The mortgage interest deduction allows homeowners to deduct the interest paid on a qualified home loan from their taxable income, which can reduce their federal income tax bill. This applies only to a primary residence and, in some cases, a second home.
The mortgage interest deduction can be significant. You can deduct interest on up to $750,000 of debt or $375,000 for homeowners married filing separately. These funds must be used towards the purchase or substantial improvement of a primary home or second home.
Mortgage interest credit
A mortgage interest tax credit is available to lower-income homeowners who use a qualified Mortgage Credit Certificate to subsidize their primary home purchase. This credit offers them up to 50% (varies by state) of the mortgage interest paid annually. If the credit rate is over 20%, the credit is limited to $2,000.
Energy credits
Installing energy-efficient appliances rewards you with lower energy bills and saves on your tax bill. You'll get credit for energy-efficient doors, windows, and appliances.
Depending on the purchase category, these are limited to a certain amount, such as up to $2,000 per year, on heat pumps, biomass stoves, or biomass boilers.
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Electric vehicle charging credit
You can get a federal tax credit of 30% of the cost of installing an electric vehicle charger up to $1,000. This is in addition to your tax credits for purchasing an electric vehicle.
Medical upgrades credit
If you have to make any improvements to your home for medically necessary reasons, such as installing ramps, lowering cabinets, or installing an elevator, you could be eligible for a tax credit. You can deduct those expenses that exceed 7.5% of your adjusted gross income.
Bottom line
While property tax exemptions and breaks can save money, you must check with your local government to see which benefits apply to your city, county, or state. Property taxes can vary wildly from one state to the next, and so can the benefits.
Confirm which you can leverage in your area, and if you're house hunting, look at which tax exemptions and breaks might help you keep more money in your bank account when it comes down to deciding between one city and the next town over.
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