The Common Law

I just bought a new house, and a bunch of times during the process, my realtor told me to file for a homestead exemption. What is a homestead exemption, and how would it help me?

If your home is your most important financial investment, think of the Texas Homestead Exemption as the bank vault that protects the home from most of your creditors. The Texas Homestead Exemption prevents the seizure and forced sale of the homestead property. Put simply, obtaining a homestead exemption provides extra legal protection because general creditors would not be able to force you to sell your homestead in order to satisfy an unpaid debt. For example, if you defaulted on outstanding credit card payments, the credit card company cannot force you to sell the house you live in so that you can pay the outstanding amount.

Saving money on property taxes is another advantage provided by a homestead exemption. The homestead exemption can save you money on your property-tax bill because a homestead exemption reduces taxes by lowering a home's taxable value.

Not all residences, however, will qualify as a "homestead." Texas law considers the "homestead" to be the primary place of residence for a family or a single person, which essentially limits each person to one homestead. Furthermore, you must have owned the home on Jan. 1 and used the home as your primary residence as of Jan. 1 in order to claim a homestead exemption for that same year.

A special form is needed to apply for homestead exemptions. The form must be completed and returned to your appraisal district's office after Jan. 1 but no later than April 30. You can download the application (www.window.state.tx.us/taxinfo/taxforms/50-114.pdf), fill out the form, and send it in to your appraisal district. In the interim, read next week's "Common Law" column to learn about limitations and exceptions to the Texas Homestead Exemption.