When you hear the word homestead, it may conjure images of chickens and goats, gardens and fields. However, homesteading is less about what the homeowner does with their property and more about how the property is classified. Helping a homeowner apply for and understand a homestead classification may be a way to set yourself apart as a real estate professional and help your client achieve the best use of their property.
We asked Steven Little, with SRL Law, to share his expertise on homesteads and the laws surrounding them. Read what he has to say about the benefits of homesteading and how/when someone can benefit from this status.
Three Major Benefits of Homesteading
The three major categories are reducing the property tax burden; (potentially) receiving a homestead credit refund; and protection of the property from creditors.
First off, the homeowners must apply for a homestead classification. In order to do so, they must:
- Own the property
- Occupy the property as sole/primary residence
- Be a Minnesota resident
The tax benefit of homesteading a property is the Homestead Market Value Exclusion under the Minnesota Property Tax Code. This includes gardens, garages and outbuildings on the property.
Relatives that qualify for both residential and occupied agricultural homestead include; parents, grandparents, siblings, children, grandchildren, aunts, uncles, nieces, and nephews of the owner or spouse of the owner.
Properties held under a trust may also qualify for homestead status, if occupied by a grantor or qualifying relative of the grantor of the trust.
2.) Homestead Credit Refund
The Minnesota Homestead Credit Refund can also help provide some relief to homeowners on their property taxes. In order to qualify for this, once again, the property must be classified as a homestead and the owners must have a valid Social Security number. Lastly, they must have already (or arranged) to pay their property taxes.
Homesteaders may qualify with regular or special circumstances for benefits. See below for the requirements to claim them.
2021 Requirements to Claim the Refund
- You owned and lived in your home on January 2, 2021
- Your household income for 2020 was less than $116,180
- You owned and lived in the same home on January 2, 2020, and on January 2, 2021
- Your home’s net property tax increased by more than 12% from 2020 to 2021
- The net property tax increase was at least $100
- The increase was not because of improvements you made to the property
- You had dependents
- You or your spouse were age 65 or older on or before January 1, 2021
- You contributed to a retirement account
- You or your spouse had a permanent and total disability on or before December 31, 2020
Homestead Credit Refund Program (state.mn.us) Minnesota Department of Revenue March 1, 2021
3.) Protection From Creditors
Finally, homesteading a property can protect up to $450,000 in value from judgment liens and foreclosures. This does not include mortgage foreclosures and IRS tax liens. See below for the details involving this protection.
According to Minn. Stat 510.01 (2021)
“The house owned and occupied by a debtor as the debtor’s dwelling place, together with the land upon which it is situated to the amount of area and value hereinafter limited and defined, shall constitute the homestead of such debtor and the debtor’s family, and be exempt from seizure or sale under legal process on account of any debt not lawfully charged thereon in writing, except such as are incurred for work or materials furnished in the construction, repair, or improvement of such homestead, or for services performed by laborers or servants and as is provided in section 550.175.”
The homestead may include any quantity of land not exceeding 160 acres. The exemption per homestead, whether the exemption is claimed by one or more debtors, may not exceed $450,000 or, if the homestead is used for agricultural purposes, $1,125,000, exclusive of the limitations set forth in section 510.05.” Minn. Stat. § 510.02, subd. 1 (2021).
We hope this article is an introduction to the benefits of homesteading and a way for you to help your clients save money and benefit from their property.
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