In most every city, the trend of “urban homesteading”— gardening on rooftops, patios, and shared courtyards—is steadily growing and some people are taking it a step further by actually considering buying a different plot of real property. A “homestead” doesn’t necessarily mean you homestead, run a farm, or even own farmland. A “homestead” doesn’t necessarily mean you homestead, run a farm, or even own farmland. More broadly, a homestead can be real estate that’s an occupied and fixed residence—your primary residence. Homesteading laws and qualifications vary from state to state but there are two, big elements to consider wherever you live: homestead exemption and homestead portability.
Photo Credit: Tejeda Law Group, P.A.
A homestead exemption allows a tax exemption for homeowners who use their homestead as a permanent residence. This kind of absolution is based on the property values of the home and in return, helps owners save big on their property taxes. Even further, homestead portability allows the transfer of homestead exemption and is made “portable” to a second property. More specifically, in the state of Florida, portability has the factor of SOH (“Save our Homes”), an amendment that limits the yearly increase of CPI (consumer price index) to only 3%. (These SOH benefits can apply to your other homestead.) That percentage also quickly builds otherwise, so it safeguards the homestead owner.
However you’re looking at or taking a homestead exemption or homestead portability, consider where you are in the real estate journey:
Are you considering buying a homestead?
Exemption and a tax break are definitely perks. Though, first, ask if the property you’re interested in will be your permanent residence. In some states, you can lose your exemption if you rent your homestead to a tenant. Best advised, too, do not use your homestead as an Airbnb—even if only temporary or during the summer. Second, determine the square footage of the property (with adjacent land) and homesteading laws in your state.
Do you already own a homestead but are considering moving to a second one?
Good for you! For one reason or another, we may find our home doesn’t quite meet our needs. Laws vary from state to state, so be sure your second property is in the same state and qualifies as a homestead, especially if you want to take the exemption with you. Check the time frame or any laws regarding homestead portability. Due to recent amendments made in Florida, the homeowner has three years to transfer their SOH benefits!
Do you want to gift your homestead?
Rural homesteads are not common in Florida, but across the country, they’re more often than not passed on from generation to generation. However you’re deciding this transfer, be sure to have the beneficiaries set in your estate plan. If you’re planning on gifting a homestead, also consider the gift tax rules in your state. Even if you’re paying out big, your children or inheritors will eventually qualify for the homestead exemption once the deed is in their name.
Overall, owning a homestead has a unique set of perks, factors, and laws vs. what one would call a traditional home or dwelling. Each state defines and regulates this differently. Whether or not you own a homestead, or consider yourself a homesteader, the American dream of having this kind of real property—and reaping the benefits—is not an impossible effort! For more homesteading laws, details about homestead exemption and portability, visit the IRS website or contact a real estate attorney.
Kindly,
Roxana
