This post is specifically for any Georgia homebuyer who purchased their home in 2006 and is hearing the word “homestead” and thinking, “I have heard that word before, and I know it’s important, but I can’t quite remember why.”
The state of Georgia allows for a reduction in property taxes for a person’s primary residence known as the Homestead Exemption. The following statement is taken from the state of Georgia Department of Revenue website:
“The home of each resident of Georgia that is actually occupied and used as the primary residence by the owner may be granted a $2,000 exemption from state, county and school taxes except for school taxes levied by municipalities and except to pay interest on and to retire bonded indebtedness. The $2,000 is deducted from the 40% assessed value of the homestead. The owner of a dwelling house of a farm that is granted a homestead exemption may also claim a homestead exemption in participation with the program of rural housing under contract with the local housing authority.”
In addition to the state’ s Homestead Exemption, certain counties offer additional reductions in property taxes (again, only for a person’s primary residence) in the form of an additional $$ amount deduction or a $$ amount reduction in the assessed value of the property.
For example, Gwinnett County currently calculates property taxes using the $2,000 state exemption, a $4,000 exemption for the school tax portion or the bill, a $7,000 exemption for the recreational portion of the bill and a $10,000 reduction on the assessed value of the property. I started to do the calculation by hand as an example to post here . . . and let’s just say, thank goodness for computers and excel spreadsheets. To make matters more confusing, if your house is located within the city limits (like my house), then the calculation becomes even harder to follow as the majority of your property taxes are paid to the city (and from looking at my tax bill), your city may offer other/additional exemptions as well.
So here is why all this homestead information is important:
1. In order to take advantage of the reduction in property taxes, you must complete and file your Homestead Exemption application with your county by the applicable deadline. Check with your specific county for details, but most are March 1st.
2. Because the exemption is based on the owner of title as of January 1st, you will not need to file until the first January that you have lived in the house. For example, if you closed on your house on June 5th, you wouldn’t need to file until the following January. Refinancing your property does not affect your exemption. However, if you are adding or deleting a person’s name to the title, you will need to re-file for homestead.
3. If you purchased a home from someone who was living in the property as their primary residence, it is likely that they had filed for the Homestead Exemption on the property. This would mean that your current mortgage payment (and tax escrow payments) are based on the reduced taxes; and if you do not file for the Homestead Exemption, your property taxes (and subsequently, your mortgage payment) will go up. Also, if you are purchasing a home from someone who has additional exemptions — a senior citizen exemption or veterans exemption, for example — your mortgage payment may start off unusually low, but once their exemption falls off the house the following year, your mortgage payment will be adjusted up (and you will likely owe the loan servicer a lump-sum of money to make up the deficit). More about this situation at the bottom of the post.
4. If you purchase a property in which the owner was not occupying the home as their primary residence (and did not have the Homestead Exemption), your tax bill and monthly mortgage payment will be based on the higher tax amount. Once the new year arrives, you can file for the Homestead exemption, but unfortunately, your mortgage payment will not reflect the change in taxes until the county has issued a new tax bill for that calendar year. Once the tax bill has been issued, you should send it to your loan servicer and request that they analyze your escrow account (and lower your monthly payment accordingly).
5. And possibly the most important . . . if you forget to file for your Homestead Exemption, you probably won’t notice anything until it is too late.
And here is why . . . Let’s say you purchased a house in March 2006. The person you purchased the home from was occupying the house as their primary residence, so your monthly payment included $300 per month for your taxes. In September of that year, the county issues the tax bill and the bill is paid by your loan servicer out of your escrow account. The following year, the Homestead Exemption falls off the house and you miss the March 1st deadline. In September the county issues a new tax bill and again the bill is paid by your loan servicer out of your escrow account. At this point, you will likely receive a notice from your loan servicer (although you may not receive anything until your escrow account is processed through the required yearly escrow analysis by your loan servicer). The notice states that your tax bill has gone up by $600 per year. The increase in taxes due is a result of a reassessed higher-value of the home by the county and because the home no longer carries the Homestead Exemption. (As a side note, in Gwinnett County, the average savings per homeowner was $425 thanks to the Homestead Exemption). Because of this increase, and because your loan servicer has already paid the bill, you owe them $600. In most situations, you can spread this payment out over the following 12 months, making your payment increase by $50 per month. But, in order for the money in your escrow account to be available to pay the 2007 tax bills, your payment has to go up another $50 as well . . . for a total increase of $100 per month. Ouch. The following January you can file for Homestead, but your payment won’t be able to be adjusted down until the following year’s tax bill is issued by the county.
Add the confusion of new construction property taxes to a missed Homestead Exemption filing and you’ve may just find yourself clicking your heels together, wishing you could just go back . . . there’s no place like home(stead), there’s no place like home(stead).