In 1986, Ronald Reagan said that the nine most terrifying words in the English language were, “I’m from the government and I’m here to help.”
And that’s the case more often than not. But not when it comes to a legal concept called a homestead exemption.
The homestead exemption, also sometimes called homestead protection, can help protect some (or even all) of your home equity in case of bankruptcy or some other catastrophic financial loss.
It’s also free.
In this article, we’ll discuss how it works and provide a list of the relevant laws, protection amounts, and important notes for every state plus Puerto Rico.
What is the Homestead Exemption?
The homestead exemption is designed to protect (“exempt”) equity within the home you live. Almost all states have an exemption you can use to protect the equity in your home in case of bankruptcy or if you experience a judgment.
How much equity a homestead exemption protects depends on the state you live in. Some states offer very little protection and others provide unlimited protection.
Now, if you happen to live in a state that doesn’t offer much (or any) homestead exemption, there’s the potential option to make use of the federal exemption. More about that in a moment.
THE TWO TYPES OF HOMESTEAD EXEMPTIONS
When we talk about homestead exemption, we’re talking about the statutory protections for the equity in your home.
There is another “homestead exemption” some states offer that allows you to take a credit against state or county property taxes. That is not the focus of this article.
Why do Homestead Exemptions exist? And how do you use them?
The idea behind homestead protection is to protect homeowners from becoming destitute if they are forced into bankruptcy and/or have an overwhelming creditor claim.
But there are rules attached. In some states, they can be quite strict. In others, not so much.
But as part of a wealth protection plan, state homestead protections can be useful.
If someone is thinking about suing you, and sees that a state’s homestead protection covers most, if not all of your home equity, that makes you less of a target in the first place. That’s especially true if you don’t have any other assets available to satisfy a judgment.
Homestead exemptions are not a blanket asset protection strategy. They only cover the equity in your home and no other asset. For that reason, they’re best seen as a last line of defense.
But because it’s free, it’s not a bad one to have.
WHAT IF YOU HAVE TOO MUCH EQUITY?
If you’ve owned your home for a while, or enjoyed a big increase in the value of your property, you may be sitting on a lot of equity that goes beyond the homestead protections in your state.
So how do you protect that? There are a number of different ways but one of the simplest is to take out a Home Equity Line of Credit (HELOC) against the value of the property for the difference between the homestead exemption and equity in your home.
You don’t have to actually use it.
But by doing it this way, when lawyers are looking for a target, they will see a lien against the value of your home for the full amount of the HELOC. They usually won’t see that it is a HELOC and they won’t have any insight into how much of the HELOC you’ve used.
Instead, they will just see that you don’t seem to have any equity in the home. And there’s a good chance they will leave you alone.
DON’T FORGET TO REGISTER
To qualify for homestead exemption in some states, you need to register for it. If that’s necessary, you can often find instructions for doing so online. A local lawyer will also be able to help you register.
Federal Homestead Protection
There’s also a federal homestead protection rule that’s part of the Bankruptcy Code. But it only applies in bankruptcy cases, which are processed in federal court.
Federal law provides a homestead exemption of up to $27,900 for individuals and $55,800 for married couples filing jointly.
The federal exemption can be used to protect your home from creditors in both Chapter 7 and Chapter 13 bankruptcy.
In a Chapter 7 bankruptcy, the homestead exemption allows you to keep your home if the value of your equity in the home is less than the exemption amount.
In a Chapter 13 bankruptcy, the homestead exemption allows you to keep your home even if the value of your equity in the home is greater than the exemption amount, as long as you can make regular payments on your mortgage and other debts.
In states where the state homestead exemption is greater than the federal exemption, it makes sense to use the state exemption, not the federal exemption. But not every state gives you that choice. A bankruptcy attorney will be able to help you sort out which exemption you can use.
Federal law also limits the amount of state homestead protection you can use in a bankruptcy case if you’ve owned a home for fewer than 40 months before a bankruptcy filing. In that event, bankruptcy law caps your homestead exemption at $189,050 (2022 limits, updated every three years) regardless of your state exemption amount.
Homestead Protection by State
Alabama
Relevant Law: Ala. Code § 6-10-2
Homestead Exemption / Protection: $15,000
Spouses / Joint Owner: $30,000
Notes: None
Alaska
Relevant Law: Alaska Stat. § 09.38.010
Homestead Exemption / Protection: $54,000
Spouses / Joint Owner: N/A
Notes: None
Arizona
Relevant Law: Ariz. Rev. Stat. § 33-1101
Homestead Exemption / Protection: $250,000
Spouses / Joint Owner: $250,000
Notes: None
Arkansas
Relevant Law: Ark. Code Ann. § 16-66-218, Ark. Const. 1874 Art.9-4
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None
California
Relevant Law: Cal. Civ. Proc. Code § 704.730
Homestead Exemption / Protection: $300,000/$600,000 (in higher cost areas)
Spouses / Joint Owner: N/A
Notes: None
Colorado
Relevant Law: Colo. Rev. Stat. § 38-41-201
Homestead Exemption / Protection: $250,000
Spouses / Joint Owner: N/A
Notes: The exemption increases to $350,000 if the homestead is occupied as a home by an owner who is elderly or disabled, an owner’s spouse who is elderly or disabled, or an owner’s dependent who is elderly or disabled.
Connecticut
Relevant Law: Conn. Gen. Stat. § 52-352b
Homestead Exemption / Protection: $250,000
Spouses / Joint Owner: N/A
Notes: The exemption is limited to $75,000 in the case of a money judgment arising out of a claim of sexual abuse or exploitation of a minor, sexual assault or other wilful, wanton, or reckless misconduct committed by a natural person.
Delaware
Relevant Law: Del. Code Ann. tit. 10, § 4914
Homestead Exemption / Protection: $125,000
Spouses / Joint Owner: N/A
Notes: None
Florida
Relevant Law: Fla. Stat. § 222.01
Homestead Exemption / Protection: Unlimited.
Spouses / Joint Owner: Unlimited
Notes: None
Georgia
Relevant Law: Ga. Code Ann. § 44-13-100
Homestead Exemption / Protection: $21,500
Spouses / Joint Owner: $43,000
Notes: None
Hawaii
Relevant Law: Haw. Rev. Stat. § 651-94
Homestead Exemption / Protection: $20,000
Spouses / Joint Owner: N/A
Notes: The exemption increases to $30,000 if the owner is 65 years old or older.
Idaho
Relevant Law: Idaho Code Ann. § 55-1004
Homestead Exemption / Protection: Shall not exceed $175,000
Spouses / Joint Owner: N/A
Notes: None
Illinois
Relevant Law: 735 Ill. Comp. Stat. § 5/12-901
Homestead Exemption / Protection: $15,000
Spouses / Joint Owner: $30,000
Notes: None
Indiana
Relevant Law: Ind. Code § 34-55-10-2
Homestead Exemption / Protection: $15,000
Spouses / Joint Owner: $30,000
Notes: None
Iowa
Relevant Law: Iowa Code § 561.16
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None
Kansas
Relevant Law: Kan. Stat. Ann. § 60-2301
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None
Kentucky
Relevant Law: Ky. Rev. Stat. Ann. tit. 39 § 427.060
Homestead Exemption / Protection: $5,000
Spouses / Joint Owner: N/A
Notes: None
Louisiana
Relevant Law: La. Rev. Stat. Ann. § 20:1
Homestead Exemption / Protection: $35,000
Spouses / Joint Owner: N/A
Notes: None
Maine
Relevant Law: Me. Rev. Stat. tit. 14, § 4422
Homestead Exemption / Protection: $80,000
Spouses / Joint Owner: N/A
Notes: For minor dependents of the debtor who have their principal place of residence with the debtor, the debtor’s aggregate interest may not exceed $160,000 and except that if the debtor’s interest is held jointly with any other person or persons, the exemption may not exceed in value the lesser of $80,000 or the product of the debtor’s fractional share times $160,000.
Maryland
Relevant Law: Md. Code Ann., Cts. & Jud. Proc. § 11-504
Homestead Exemption / Protection: $27,900
Spouses / Joint Owner: $55,800
Notes: None
Massachusetts
Relevant Law: Mass. Gen. Laws ch. 188, § 1
Homestead Exemption / Protection: $500,000
Spouses / Joint Owner: N/A
Notes: None
Michigan
Relevant Law: Mich. Comp. Laws § 600.5451
Homestead Exemption / Protection: $30,000
Spouses / Joint Owner: N/A
Notes: For debtor or dependent of debtor aged 65 years and older, disabled; $45,000
Minnesota
Relevant Law: Minn. Stat. § 510.02
Homestead Exemption / Protection: $480,000
Spouses / Joint Owner: N/A
Notes: $1,200,000 (if homestead used mainly for agriculture)
Mississippi
Relevant Law: Miss. Code Ann. § 85-3-21
Homestead Exemption / Protection: $75,000
Spouses / Joint Owner: N/A
Notes: None
Missouri
Relevant Law: Mo. Rev. Stat. § 513.475
Homestead Exemption / Protection: $15,000
Spouses / Joint Owner: N/A
Notes: None
Montana
Relevant Law: Mont. Code Ann. § 70-32-104
Homestead Exemption / Protection: $250,000
Spouses / Joint Owner: N/A
Notes: None
Nebraska
Relevant Law: Neb. Rev. Stat. § 40-101
Homestead Exemption / Protection: $60,000
Spouses / Joint Owner: N/A
Notes: None
Nevada
Relevant Law: Nev. Rev. Stat. tit. 10 § 115.010
Homestead Exemption / Protection: $605,000
Spouses / Joint Owner: N/A
Notes: None
New Hampshire
Relevant Law: N.H. Rev. Stat. Ann. § 480:1
Homestead Exemption / Protection: $120,000
Spouses / Joint Owner: $240,000
Notes: None
New Jersey
Relevant Law: N.J. Stat. Ann. § 2A:17-19
Homestead Exemption / Protection: None
Spouses / Joint Owner: N/A
Notes: None
New Mexico
Relevant Law: N.M. Stat. Ann. § 42-10-9
Homestead Exemption / Protection: $60,000
Spouses / Joint Owner: $120,000
Notes: None
New York
Relevant Law: N.Y. CPLR § 5206
Homestead Exemption / Protection: $89,975-$179,975
Spouses / Joint Owner: N/A
Notes: The amount of the exemption depends on the county in which a homestead is located.
North Carolina
Relevant Law: N.C. Gen. Stat. § 1C-1601
Homestead Exemption / Protection: $35,000
Spouses / Joint Owner: $70,000
Notes: $60,000 for those aged 65 years and older.
North Dakota
Relevant Law: N.D. Cent. Code § 47-18-01
Homestead Exemption / Protection: $100,000
Spouses / Joint Owner: N/A
Notes: None
Ohio
Relevant Law: Ohio Rev. Code Ann. § 2329.66
Homestead Exemption / Protection: $136,925
Spouses / Joint Owner: N/A
Notes: None
Oklahoma
Relevant Law: Okla. Stat. Ann. tit. 31 § 1
Homestead Exemption / Protection: Unlimited.
Spouses / Joint Owner: Unlimited.
Notes: The exemption falls to $5,000 if more than 25% of your property is used for business purposes.
Oregon
Relevant Law: Or. Rev. Stat. § 18.395
Homestead Exemption / Protection: $40,000
Spouses / Joint Owner: $50,000
Notes: None
Pennsylvania
Relevant Law: 42 Pa. Cons. Stat. Ann. § 8123
Homestead Exemption / Protection: None
Spouses / Joint Owner: N/A
Notes: None
Rhode Island
Relevant Law: R.I. Gen. Laws § 9-26-4.1
Homestead Exemption / Protection: $500,000
Spouses / Joint Owner: N/A
Notes: None
South Carolina
Relevant Law: S.C. Code Ann. § 15-41-30
Homestead Exemption / Protection: $58,255
Spouses / Joint Owner: $116,510
Notes: None
South Dakota
Relevant Law: S.D. Codified Laws § 43-45-3
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None
Tennessee
Relevant Law: Tenn. Code Ann. § 26-2-301
Homestead Exemption / Protection: $5,000
Spouses / Joint Owner: $7,500
Notes: For an unmarried person sixty-two (62) years of age or older; $12,500, a married couple, one (1) of whom is 62 years of age or older and the other of whom is younger than 62 years of age, shall be entitled to a homestead exemption not exceeding $20,000, a married couple, both of whom are 62 years old or older, shall be entitled to a homestead exemption not exceeding $25,000.
Texas
Relevant Law: Tex. Prop. Code Ann. § 41.001
Homestead Exemption / Protection: Unlimited
Spouses / Joint Owner: Unlimited
Notes: None
Utah
Relevant Law: Utah Code Ann. § 78B-5-503
Homestead Exemption / Protection: $42,700
Spouses / Joint Owner: $42,700
Notes: None
Vermont
Relevant Law: Vt. Stat. Ann. tit. 27 § 003
Homestead Exemption / Protection: $125,000
Spouses / Joint Owner: N/A
Notes: None
Virginia
Relevant Law: Va. Code Ann. § 34-4
Homestead Exemption / Protection: $25,000
Spouses / Joint Owner: N/A
Notes:
Washington
Relevant Law: Wash. Rev. Code § 6.13.030
Homestead Exemption / Protection: $125,000
Spouses / Joint Owner: N/A
Notes: None
West Virginia
Relevant Law: W. Va. Code § 38-10-4
Homestead Exemption / Protection: $35,000
Spouses / Joint Owner: $70,000
Notes: Physicians practicing in the state who experience a malpractice judgment may be eligible for a $250,000 exemption.
Wisconsin
Relevant Law: Wis. Stat. § 815.20
Homestead Exemption / Protection: $75,000
Spouses / Joint Owner: $150,000
Notes: None
Wyoming
Relevant Law: Wyo. Stat. Ann. § 1-20-101
Homestead Exemption / Protection: $100,000
Spouses / Joint Owner: $200,000
Notes: When two or more persons jointly own and occupy the same residence, each shall be entitled to a $100,000 exemption.
Homestead Protection in Puerto Rico
US territories also offer a homestead protection. Because the vast majority of our clients come from within the 50 states, we don’t normally cover the territories, with one exception.
In the past decade or so, a number of our clients have become residents of Puerto Rico in order to take advantage of the tax benefits there.
In 2011, the governor of Puerto Rico signed into law Act 195, “Ley del Derecho a la Protección del Hogar Principal y el Hogar Familiar.” It establishes an unlimited homestead exemption for residents of the territory. To qualify for this protection, you must file a note that has been certified by a notary public with the Land Registrar that the property has been designated by the owner as a “safe home,” i.e. “hogar seguro.”
Can you lose homestead protection even if you continue to live in the house?
Yes, it is possible to lose homestead protection even if you continue to live in the house. Failure to pay property taxes is one way. Committing fraud doing something illegal that results in a judgment is another.
Certain obligations are also exempt from homestead protection, including mortgage payments and failing to pay property tax (in most states). A federal tax lien is also exempt from homestead protection.
Each state has different rules. To get the most from this protection, you’ll want to understand the benefits and limitations that apply to you.
How do you protect your house if homestead protection is low in your state?
If you find yourself in a state with low homestead exemptions, you will need to protect your home in other ways. One popular choice with our clients is a Home Equity Line of Credit (HELOC) for the difference between the homestead exemption and equity in your home.
You do not have to use it.
But by doing it this way, lawyers trolling for a target will see a lien against the value of your home for the full amount of the HELOC. They usually won’t see that it is a HELOC and they won’t have any insight into how much of the HELOC you’ve used.
Instead, they will see that you don’t seem to have any equity in the home. And there’s a good chance they will simply leave you alone.
Need Help?
Since 1984, we’ve helped more than 15,000 customers and clients protect their wealth using proven, low-risk planning. To see if our planning is right for you, please book in a free no-obligation call with one of our Associates. You can do that here.
