Homestead Tax Exemption Could Mean Savings

December 22, 1998

UNIVERSITY PARK, Pa. -- A state deadline that passed recently with little fanfare could make a big difference in the taxes paid by many Pennsylvanians, according to an economist in Penn State's College of Agricultural Sciences.

By Dec. 15, county assessors in the state were required to tell residents about the opportunity to take part in the Homestead Property Exclusion Program Act (also known as Pennsylvania Act 50 of 1998), explains Timothy W. Kelsey, associate professor of agricultural economics and author of "Understanding the Homestead and Farmstead Exclusions," a special bulletin available from Penn State Cooperative Extension.

The exclusions allow homes and farms that serve as the owner's primary residence to receive county, school district, township, borough or municipal tax reductions, cutting the owner's total tax bill, Kelsey says. He says the law's purpose is to smooth out a jumbled tax landscape and to provide tax relief for stressed property owners.

"The law is intended to complement other aspects of Act 50 of 1998, which lets school districts change their local tax structure to rely more upon an earned income tax, and thereby reduce the real property tax and eliminate several nuisance taxes -- such as per-capita, occupational or occupational privilege taxes," he says. "Under Act 50, any taxing jurisdiction can give homestead and farmstead exclusions without any change to the existing local tax structure, as long as the jurisdiction can pay for them without increasing real property taxes."

The programs should be of interest to all residents who own a home, and to farmers who live on their farm. Rental properties, business properties and non-primary residences will not qualify for the exclusions; only homes and farms that serve as the permanent residence of at least one of the owners qualify.

Non-resident property owners should not face higher real property taxes because of the program, Kelsey says. But depending upon how the program is supported locally (such as through higher school district earned income taxes), renters may pay more in earned income tax.

While this change should mean tax relief for property owners, it also can be complicated. A property owner will receive a tax break under the bill only if their local school district, county or municipal government decides to offer an exclusion. The exclusion cannot occur until July 1 for schools (when the new budget year begins) or Jan. 1, 2000 for county and municipal governments. Homeowners must then apply for and be granted an exclusion. And there are other caveats to be worked out.

"Most jurisdictions will not be able to take advantage of the homestead and farmstead exclusions without state passage of comprehensive local tax reform," Kelsey says. "The act provided school districts with a new local tax alternative, but some argue this alternative is too limited for many districts. In addition, many county and municipal governments do not have the local tax options they need to implement the exclusions."

Many county assessors have already or are planning to mail announcements of the program to county property owners, potentially creating a lot of interest in the program -- and a lot of questions from residents.

"Each property could be subject to three different exclusions: one for school district taxes, set by the district based on the median value of homes in your district; one for county taxes, based on median home values in the county; and one for your city, borough or township, based on municipality home values," Kelsey says. "These exclusions probably will be different, because assessed values vary. So it pays to know the new law."

A fact booklet, "Understanding the Homestead and Farmstead Exclusions," answers frequently asked questions about the new law. Single copies are available free of charge by contacting your county Penn State Cooperative Extension office, or by calling the College of Agricultural Sciences Publications Distribution Center at 814-865-6713.

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EDITORS: For more information, contact Timothy Kelsey at 814-865-9542.

Contacts: Gary Abdullah GXA2@PDU.EDU 814-863-2708 814-865-1068 fax

Last Updated March 19, 2009