Tax Exemption for Disabled Veterans
How Do You Qualify for and Reduce or Eliminate
Your Real Estate Property Taxes?
When you are awarded a service-connected disability status from the Department of Veterans Affairs, there are typically TWO significant financial benefits to using your VA Home Loan Benefit. You are exempt from the VA funding fee, and that exemption reduces your home loan financing costs. (See other chapters for more information on the VA funding fee.) You may also qualify for a significant reduction or complete elimination of your property tax payments. As a Veteran, these benefits present an even greater reason to purchase a home.
However, property tax exemptions are “state-specific.” Each state in the union has its own tax code dictating whether you, as a disabled Veteran, can claim any exemption from the property tax assessment, delivered by the county in which you own your home. Real estate property taxes are assessed by the county tax assessor, not the state. In California, where SoCalVAHomes operates, Article XIII of the California Constitution, Section 4(a) and Revenue and Taxation Code, Section 205.5 provides for this available exemption.
As an example of state to state differences, Texas allows a 100% exemption from all property taxes for 100% service-connected disabled Veterans, regardless of your property value. California is not as generous. To qualify for the Disabled Veteran's Property Tax Exemption, the Golden State sets larger restrictions on property value, income, and disability status.
Texas will allow reduced exemptions for those Veterans with LESS THAN 100% disability. California will only allow an exemption for Veterans with a full 100% disability rating. You must be a “qualified” disabled Veteran or the unmarried spouse of a “qualified disabled Veteran” to participate in the program.
In 2015, California allowed an exemption for the first $126,380 of property value. In other words, if you own a home worth $426,380 as assessed by the county assessor, your county will require that you still pay property taxes on $426,380 minus $120,380 or $300,000 of value. The Golden State gets a little bit more generous if your income is less than $56,751 per year. It’s worth noting that California does not make any further restrictions if any of the income is tax-free (from your disability payments from the VA.) If you meet that income criteria of less than $56,751, your property tax exemption increases to $189,571. California’s tax code provides for annual inflation-adjusted limits of both exemption amounts and income limits.
We see a lot of Veterans in the Golden State purchase property in less populated areas where prices are low. Areas which are more rural are much less expensive and attract those buyers that yearn for a lifestyle better suited for less populated areas. Many of the Veterans who purchase homes in these areas meet the income restriction. For these men and women who have this specific income level, a 100% service-connected disability, and the increased tax exemption, their economic benefit can be really significant. With property taxes slightly more than 1.00% of the value of the average home in California, this tax exemption is worth more than $157/month (and rising) to these deserved Veterans.
Applying for these tax exemptions can be relatively simple. Each county requires submission of a two-page form (which has two pages of instructions) along with proof of disability. Your disability award letter will provide the necessary proof. The forms are available at the county tax assessor’s office or easily downloaded online.
It’s worth noting that outdated information appears on the California State Board of Equalization website. The information does not include over a decade of inflation adjustments on both exemption limits and income limits. Rather, current limits can be found at the bottom of the actual submission forms from each county.
Finally, although property tax payments are tax deductible, and may reduce your federal and state income tax liability, and although your disability payments are non-taxable, when you buy a home, you still must pay property taxes in many cases. The Disabled Veteran’s Property Tax Exemption can be a very helpful way to enhance your affordability of a home in California. Be sure to consult your CPA regarding tax advice.
For assistance on determining what an affordable home loan payment could be for you, especially considering tax exemptions related to your service connected disability, let So Cal VA Homes help. Call us at (949) 268-7742.