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What is a homestead tax reduction?

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Quick Answer

A homestead tax deduction is a property tax credit provided to homeowners who meet certain criteria, About.com explains. The criteria varies from state to state, but most state's require that the homestead be the principal residence of the home's owner and that it be occupied in a specific time frame.

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Full Answer

Florida and Maine calculate their homestead credit by reducing the property's assessment by a certain dollar amount established by the state, explains About.com. Other states calculate the credit as a percentage. Maryland uses the homestead credit to protect property owners from increasing home values, which means that if the value of a home increases by 40 percent, the owners pay no more than an increase of 10 percent on their property taxes. In Michigan, the homestead tax credit is a combination of household income and home value, notes the Michigan Department of Treasury.

California has a homeowner exemption that is similar to the homestead tax credit, but it also has a homestead exemption that protects homeowners from losing their home to creditors by protecting the equity in the homeowner's home, reports Hall, Bishop & Hall, LLC. This unique exemption applies to everyone who lives in a dwelling, which by California standards includes a home, mobile home, trailer or boat.

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