Monday, September 3, 2007

H is for Homestead

Simply put, a homestead is someone's primary residence. The byproduct, for most places is the Homestead Exemption.

One of the more important functions of the homestead is that it may shield a primary residence from loss due to bankruptcy or lawsuit. We often forget about that aspect of the Homestead status, but it is very important. (Thanks Chuck for reminding me)

Here in Georgia, a portion of the value of a home is shielded from taxation. The effect of this is that it makes the rate of taxation progressive. I won't get into my feelings on progressivity in taxation, but rather I'll just give a simple explanation. We'll assume a 1% rate of taxation to keep from going into millage rates and other more complicated aspects.

Let's say that our first homeowners live in a $200,000 home. The Homestead Exemption for this fictional county will be $50,000. So, their taxes are based on $150,000. The taxes would be $1500. This translates to a 0.75% rate.

Our second homeowners have a $600,000 home. They get the same $50,000 exemption, so the taxes are based on $550,000. Their taxes are $5500. The taxation rate is 0.92%.

One thing to keep in mind is that one only has a single homestead exemption. If one owns more than one property, they only get to have one primary residence. This would be the place one votes, etc.

For those that like to get into the nuts and bolts, I will go through the actual calculations for a community in Gwinnett County. Bear with me.

The home is valued at $250,000, and the first thing we do is multiply the value by 40%... so, now we are at $100,000. There are different exemptions and millages for different taxes. The state exemption is $2000, the county exemption is $10,000, the school exemption is $4,000, and the recreation (parks) exemption is $7,000. There are eight different millages. They are state ($0.25), county ($10.00), county bond ($0.23), jail bond ($0.25), school ($19.25), school bond ($1.30), recreation ($0.82), and finally city ($2.31). This is a total millage of $34.41, but because of the various exemption, the taxes for this home are $3257.76.

A millage is the tax per $1000 of assessed value. In this case, the total millage was $34.41

Assessed value is the number we are left with after the multiplier is applied. In this case, it was $100,000.

1 comment:

Lane Bailey said...

Thanks Chuck for reminding me about the legal protections from Homestead Exemption.

Blog updated.