Homes, for most people, are the most significant and expensive asset they possess. Being a homeowner is expensive, property taxes, homeowner’s insurance, utilities, repairs and upkeep, just to name a few. As such, homeowners are concerned with exploiting every available opportunity or tactic to save money regarding their houses. One such opportunity is the Ohio homestead exemption, which, if exploited properly, can save thousands of dollars for homeowners over the years. If you want to take advantage of this credit, or don’t know how to apply for it, contract a local Cleveland area estate planning attorney and start saving.
- What is the Ohio Homestead Exemption?
Per the Ohio Department of Taxation, the homestead exemption allows low-income senior citizens and permanently and the totally disabled, to reduce their property tax bills by shielding some of the value of their homes from taxation. The exemption works by giving qualified recipients a credit on property tax. This credit allows homeowners to exempt $25,000 in home value from all local property taxes. For example, if a home is worth $90,000 and qualifies for the exemption, it will be taxed as only being worth $65,000.
Like all legal and tax questions, the precise amount of available savings is highly dependent on personal circumstance and state and local tax code. Further, under Ohio law, and as the name suggests, this exemption is limited to the “homestead,” which is defined as an owner’s dwelling and up to one acre of land. As such, if you have more property, different tax saving strategies, such as trusts, must be pursued. Again, per the Ohio Department of Taxation, overall, across Ohio, qualified homeowners saved an average of about $495 per taxpayer during the 2015 tax year. Note, however, the value of the exemption may not exceed the value of the homestead.
- How do you qualify for the Homestead Exemption?
Per the Ohio Department of Taxation, the homestead exemption is available to any Ohio resident homeowner who:
- Owns and occupies their own home as their primary residence and
- Qualifies under the means-test and
- Is at least 65 years old or turns 65 in the year for which they apply; or
- Is totally and permanently disabled as of January 1 of the year for which they apply, as certified by a licensed physician or psychologist, or a state or federal agency; or
- Is the surviving spouse of a person who was receiving the previous homestead exemption at the time of death, and where the surviving spouse was at least 59 years old on the date of death.
What is the mean-test for the Ohio homestead exemption? The means-test is an income threshold, which an applicant must be under to claim the exemption ($32,200 in 2018). Further, since applications for real property are filed in the year for which homestead is sought, the homeowner must be 65 by December 31 of the year the application is filed. Additionally, in the event a person owns more than one home, the principal place of residence is the home where the person is registered to vote, and the person’s place of residence for income tax purposes.
- Homestead Exemption and Trusts
As trusts have become more and more popular in estate planning, a common question is, will I lose my homestead exemption if I place it in trust? Again, like most legal questions, the answer is it depends. Here, it depends in the exact terms of your trust and the nature of the ownership interest conveyed to the trust and retained by the grantor/homeowner.
As stated above, a critical aspect of qualifying for the homestead exemption is that it is only available for your personal residence and you are occupying. Herein lies the rub and is where your Cleveland estate planning attorney earns his keep. First, the legal definition of “owner” is broad enough to include a vendee in possession under a purchase agreement or a land contract, a mortgagor, a life tenant, and a settlor of a revocable or irrevocable inter vivos trust holding the title to a homestead occupied by the settlor as of right under the trust. So, it doesn’t necessarily have to be the record title holder that qualifies for the exemption. Second, whether something is both a personal residence and in a state of occupation are fact specific questions. Largely you prove both via paperwork. The address you put down for your driver’s license, tax returns, receive mail, register to vote, etc. Third, through precise and smart drafting of trust language, on paper your home can receive the peace of mind and protections of being in trust, while in reality, and to qualify for the exemption, you still physically reside at the home.
The use of either a revocable or irrevocable trust is not an automatic foreclosure of homestead exemption eligibility. If a homeowner is willing to play ball and, if circumstances require, make some estate planning concessions to take tactical advantage of certain options, the world is your oyster. Municipal, state, and federal tax codes are full of potential avenues for estate tax savings, one only needs the courage and knowledge to take advantage of them. Lucky for you, smart homeowner, you have experienced Ohio estate planning attorneys that are only a quick phone call away.
The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.