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Homestead Exemptions in Minnesota Real Estate

Instructor: Traci Cull
There are different types of homestead exemptions in Minnesota including a classification exemption, a protection on the property and an agriculture homestead exemption. This lesson will explain each type.

Homestead Exemptions

A homestead is a classification that states that your property is your primary residence or domicile. This can also be referred to as your primary address, or the address on your legal documents. You must actually occupy the property for it to be considered a homestead and be an individual, and not a business.

Why would you want to classify your property as a homestead? Because it can qualify you for reduced taxable market value on your property and other benefits. You may own several pieces of property, but you may receive a homestead exemption only for the one you reside in. This exemption includes the house and a portion of the land.

Residential Homestead Exemption

Let's meet Sophia. Sophia just closed and moved into her new home on one acre in Rochester, Minnesota. She is filling out paperwork and wants to know if her property qualifies for any exemptions. The first exemption to consider is the homestead exemption. In order for Sophia to qualify for this, the home must be occupied and owned by her and be her primary residence. The home cannot be a part-time lodging location for her.

Sophia has the burden of proving this is her primary residence. Merely occupying a residence is not enough to claim a homestead exemption, there must also be overt acts of homestead usage evident. This is the case, so she thinks she qualifies. If she owned vacation homes as well, only her one primary residence would qualify for this exemption. She is also not sure if the entire one acre will all be included or just a portion. She will need to go to her courthouse and file papers with the local assessor's office. This will continue for as long as she resides in the home, and she does not need to reapply each year.

Sophia wants to know what benefits are included in having a homestead exemption on her property. The first benefit is that it qualifies the property for a homestead classification rate on property taxes. This reduces the market value of the property, and therefore, reduces her taxable value. Exemptions also support public policy and support the overall idea that residents should be permitted to be self-sufficient and not dependent on the state systems. Sophia also learns that the homestead exemption extends to her immediate family who reside with her in the home. She also finds out that the amount of value that falls under the exemption is usually adjusted periodically based on inflation or deflation of the current economy. Sometimes the elderly or disabled are given even larger tax breaks, but those do not apply to Sophia.

Sophia is interested to know if the homestead exemption only applies to actual houses, or if it can apply to condominiums, apartments, cabins, or other types of residences. As long as the person applying for the exemption owns the structure they reside in, and it is their legitimate residence, it will satisfy the requirement.

Homestead as Protection

There are usually a lot of misunderstandings in regard to what a homestead exemption actually includes. There are two completely separate parts to it. The first one is discussed above with Sophia and includes a tax exemption or lowered tax rate based on the value assessed and the specific state's rate. The second section of the homestead is a protection of the home and property from creditors. These have no bearing on one or the other but are both referred to as homestead exemptions.

A little clarification about the protection aspect of the homestead, the homestead exemption makes the property exempt from seizure or sale if there is a legal process for any debt not lawfully charged in writing. This means that Sophia's property would be protected from creditors for at least some of the value. No creditors may seize more of the equity than the homestead laws allow. The exception to this is for unpaid taxes, unpaid mortgage payments, and mechanic's liens. Mechanic's liens are liens that have been placed on your property by someone who has done labor or provided materials to improve the property and has not been paid. These exceptions are the only ones that can force a sale to pay a debt. However, some states limit the amount of protection, so it is important to know that limit.

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