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Property tax relief: Homestead exemption

Mark Steber

Chief Tax Information Officer

Published on: August 07, 2023

With inflation and economic pressures hitting most Americans, certain states like New Jersey and Texas are looking to expand property tax relief. Read more to find out about what the homestead exemption is, the difference between a tax exemption and a tax deduction, and how this all may affect you and your family.

What is property tax relief?

First, what is property tax? It’s a tax paid on property owned by an individual or other legal entity, such as a corporation. The local government calculates this tax, and the owner of the property pays it. The tax is usually based on the value of the owned property, including land.

The money collected from these taxes is broadly used to keep the state and local governments functioning. They comprise the bulk of the revenue that goes into funding public safety, infrastructure, public schools, as well as the county government.

Depending on your state, your property tax bill can clock in at $200 to more than $10,000, according to the Tax Foundation. These property taxes can become overwhelming for homeowners. Which is why many states propose and pass legislation to ease this burden in the form of property tax relief.  

When it comes to property tax relief, many states have created programs aimed at easing property tax burdens on homeowners who may qualify for this type of tax break.

What is a homestead exemption?

If you’re using a home as a primary residence, you may qualify for a what is called a “homestead exemption.” A homestead property tax exemption protects a certain amount of the value of your primary property from taxes. States either allow you to exclude a flat amount, or a percentage of your property’s taxable value. This limits the maximum amount you must pay in real estate taxes.

The differences between a property tax exemption and a property tax deduction

Many people wonder what the differences are between property tax exemptions and property tax deductions. If you have a property tax exemption, your property tax bill is reduced by the exemption amount when your taxes are calculated. If you have a deduction, the amount of the deduction simply lowers the taxable income on your tax return.

You can deduct your state and local property taxes (SALT) from your federal income taxes, so you’re not paying the IRS as much. Deductible real estate taxes include any state, local, or foreign property taxes that are levied for the general public welfare. You cannot deduct taxes charged for services like sewage and trash collection.

In 2017, the Tax Cuts and Jobs Act (TCJA) capped the property tax deduction, along with other state and local taxes, starting in 2018. The law capped the deduction for state and local taxes, including property taxes, at $10,000, or $5,000 if married filing separately. Prior to this, there was no limit on the deduction. 

Eligibilities for property tax relief programs

Many states have multiple programs with various levels of benefit available, depending on the age, veteran status, and other characteristics of the taxpayer. The most prevalent form of relief is a deduction from assessed value before the property tax rate is applied. Some states also provide tax reductions that are tied to income.

New property tax relief for N.J. seniors

On July 1, 2023, New Jersey’s legislature passed new property tax relief for seniors into law. This will expand eligibility for the state's Senior Freeze property tax relief program next year, raising the income maximum to $150,000, up from roughly $100,000.

The Senior Freeze program in New Jersey reimburses eligible senior citizens and disabled persons for a part of their property tax or mobile home park site fee on their principal residence, or main home. This would give eligible homeowners who are 65 years of age or older a 50% property tax credit, up to a maximum of $10,000. To qualify, you must meet all the eligibility requirements for each year, from the base year through the application year. We go into more detail on that below.

Who qualifies for New Jersey property tax relief?

Homeowners and some renters may qualify for New Jersey property tax relief. Homeowners are eligible if:

  • Mobile homeowners:
    • You must own and live in the home from December 31, 2018, through December 31, 2022.
    • You must pay your site fees by December 31 of each year.
  • Homeowners:
    • You must own and live in the home from December 31, 2018, through December 31, 2022.
  • Age 65 or older as of December 31, 2021, or receive Federal Social Security disability benefits since at least December 31, 2021
  • Have paid property taxes on their principal residence in New Jersey either directly or through mobile home park site fees
  • Be a continuous New Jersey resident and homeowner or renter since at least December 31, 2011
  • Meet certain income limits regardless of your filing status:
    • 2021 - $94,178 or less; and
    • 2022 - $99,735 or less

You must meet all requirements for both base years—or the year applicant first became eligible—and the reimbursement year.

This new tax relief deal would also allow both senior homeowners and renters to get a $250 credit for 2023 and 2024, which is an increase to $700 (from $450) from the renters' credit through the Affordable New Jersey Communities for Homeowners and Renters (ANCHOR) program. A local Jackson Hewitt Tax Pro can work with you if you’re interested in finding out more details surrounding the ins and outs of New Jersey property tax relief.

Texas property tax relief: property tax cuts for Texans

Texas Governor Greg Abbott recently signed an $18 billion tax cut for Texas property owners, sending the proposal to voters for their approval later this year.

The package puts $12.6 billion of the state’s budget surplus toward making cuts to school taxes for all property owners, dropping property taxes an average of more than 40% for some 5.7 million Texas homeowners and offering brand-new tax savings for smaller businesses and other commercial and non-homesteaded properties.

The new Texas homestead exemption for school districts is up to $40,000 for every homeowner. That means that homeowners will not get taxed for the amount of their exemption. For example, an individual owns a home with a $300,000 appraised value and they qualify for a $40,000 school tax exemption. The value used to assess the school tax is now $260,000.

 Then voters must pass the plan in a vote in November. If voters approve the deal, the cuts would be set to start with the 2023 tax year. A local Texas Jackson Hewitt Tax Pro can work with you on what you’d need to know and do to reap some of these property tax relief rewards.

Each state has its own property tax rules and regulations—and they’re often changing and undergoing discussion by local legislations. Find a Jackson Hewitt office near you to get the best advice for your home state and hometown. We’re here to help you this year and for many years to come.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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