Texas Homestead Exemption

Texas Homestead Exemption

A Brief History

Everything is bigger in Texas, even bankruptcy protections! A substantial number of Americans who settled in Texas back in the ol’days did so because they were heavily indebted and hoped to escape their creditors by moving to what was at that time a different country. Texas accommodated its new residents by enacting protections from creditors beginning in the 1820s. Later, the Texas Act of 1839 became the first law anywhere to codify homestead protections. Texas was a trendsetter, and homestead protections now exist in many states around the nation.

What is a Homestead?

A homestead is generally the primary residence of an individual or a family. The residence must be “real property,” meaning that houseboats, RVs, and mobile homes do not qualify. However, leaseholds, beneficiary interests in property held by trusts or estates, and even vacant land may qualify in the right circumstances. Mineral rights attached to the homestead are included in the exemption, as are burial plots at any location.

What protection is offered by the Homestead Exemption?

The homestead exemption limits the ability of creditors to seize the homestead of a debtor. It does so by exempting all claims except those created through an encumbrance on the homestead. Encumbrances are fixed, or created, in only a few ways:

  • Mortgage Debt (acquisition or refi)
  • Property Taxes
  • Divorce Settlements
  • Internal Revenue Service (IRS) Debt (depending on very specific circumstances)

In other words, a homestead can only be seized to satisfy debts owed to mortgage lenders, the government, and your ex. It cannot be seized by business creditors, credit card companies, or through civil lawsuits. Therefore, the exemption is of particular interest to business owners, or others at risk from malpractice lawsuits.

Please note that the Homestead Exemption is specifically used to protect against seizures related to debt. It does not protect against civil asset forfeitures, i.e. confiscations related to criminal activities.

Are there limitations on the Exemption?

There are no dollar amount limitations, but there are limits to the physical size of the property that can be included the exemption. For this limitation, a distinction is made between urban and rural property.

Urban homesteads are limited to ten acres for the purposes of the exemption. A homestead is considered urban if:

• It is located within the limits of a municipality or its jurisdiction, or a platted subdivision

AND

• It is served by police, fire, and at least three of the following utilities are provided by a municipality

  • Electricity
  • Natural Gas
  • Sewer
  • Storm Sewer
  • Water

Rural homesteads are limited to 200 acres for a family, or 100 acres for a single adult. The acreage does not need to be contiguous. I.E., the acreage may be made up of non-adjoining parcels. However, it may be difficult to establish that non-adjoining parcels are part of the debtor’s home. Agricultural activities and other factors may be considered, which are beyond the scope of this discussion.

What If I need to move?

If you sell your homestead the exemption will protect the sale proceeds for six months from the date of the sale. The proceeds can be used in that time to acquire a new homestead, which will then be under the protection of the exemption.

How do I establish the exemption?

If you are living at your home, you have established through facts and circumstances that your home is your homestead and therefore have qualified for the exemption. Filing for, and receiving, a homestead property tax exemption from your appraisal district is helpful but not necessary.

Establishing a homestead on property that you do not currently occupy is a little more difficult, but by no means impossible. If you have taken reasonable and prudent actions to prepare a new home for occupancy, you may be able to claim it as your homestead even before you occupy it. For example, you may have purchased land, cleared it, put in a septic tank, driveway, and started framing a house. These actions may establish this property as your homestead even if you are living at another location during construction.

For people that own multiple homes, it may be prudent to execute an affidavit that specifies one property as your homestead while disclaiming the other properties. Other facts and circumstances, such as your driver’s license, vehicle registration, use of utilities, and cell phone records may be used to establish one home over the others as the homestead.

Once you have established your homestead, it is presumed to exist indefinitely until you take actions that establish intent to move to a new homestead.

Caveat and Conclusion

This article is intended to be an introduction to the concept of the Texas Homestead Exemption. This article does not constitute legal advice or tax advice. Please consult your attorney and/or CPA for advice on your specific facts and circumstances.

If you are a client of our firm, please get in touch with your normal contact to discuss how the exemption would apply to you. If you are not yet a client of our firm, we would be delighted to conduct an initial consultation at no charge. You may contact us at 210-829-1300 to set an appointment.


ADKF
is the largest, locally owned public accounting firm in San Antonio, Texas, with branch offices in Boerne and New Braunfels. We have been serving our community since 1991. We are a full-service CPA firm dedicated to providing a broad range of tax, audit, bookkeeping, tax controversy, and consulting services with superior customer service to help our clients meet their goals and objectives. Please click here to set an appointment with us.

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