Does North Carolina Have a Homestead Exemption?

North Carolina doesn’t have a general homestead exclusion, but it does have several available options for elderly and disabled residents.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

Homestead Exclusion

The North Carolina homestead exclusion is available to seniors age 65 or older as well as residents who are totally and permanently disabled. Additionally, there is an income eligibility limit of $33,800 (adjusts each year for inflation).

You generally need to own the home as of January 1st and the deadline to apply is June 1st.

Exclusion Amount

You can generally exclude the greater of $25,000 or 50% of your home’s value.

So if your home is worth up to $50,000, you can exclude $25,000. If your home is worth $100,000, you can exclude $50,000.

Income Eligibility

Income includes Social Security benefits, retirement payments, and insurance payments that may not normally be subject to income tax. If you’re married, the income eligibility limit is typically combined income not per person.

If you aren’t sure whether income will disqualify you, you may want to talk to a tax advisor or go ahead and apply for the program.

Eligibility Due to a Permanent Disability

If you’re applying for the homestead exclusion because of a permanent disability, you must provide proof that you’re permanently disabled. This can include a certificate from a North Carolina medical doctor or a governmental agency authorized to make the determination.

Maintaining Eligibility

You generally don’t need to reapply each year, but you must notify your local tax assessor if your income exceeds the current income eligibility limitation amount or if you’re no longer considered totally and permanently disabled. You also must notify the tax assessor if the person eligible for the determination dies.

If you don’t notify the tax assessor of changes in your eligibility, you may have to pay back property taxes plus penalties and interest.

If you move, you will generally need to reapply for your new home.

Homestead Circuit Breaker Tax Deferment Program

The homestead circuit breaker tax deferment program is an alternative to the exclusion. You can’t participate in multiple property tax relief programs.

In addition to the age or permanent disability requirements of the exclusion, eligibility for the tax deferment requires you to have owned and occupied the property as your permanent residence for five years.

To receive this benefit, you generally need to reapply every year.

How the Deferment Works

With the deferment, your property taxes are limited to a percentage of your income. Any additional amount is deferred.

The last three years of deferred taxes become payable on the:

  • Death of the owner*

  • Transfer of the property*

  • Owner no longer using the property as a permanent residence

*Generally does not include transfers to a co-owner or spouse including in divorce.

Interest accrues on the defered taxes based on the original due dates.

The deferred taxes are secured by a lien on the property. However, North Carolina law generally prohibits a mortgage lender from initiating a foreclosure because you elected to use this option.

Income Eligibility Limit

If your income is up to $33,800, property taxes are capped at 4% of your income.

If your income is $33,801 to $50,700, property taxes are capped at 5% of your income.

Higher income amounts generally don’t qualify.

The income limitation amount is adjusted for inflation each year, so check for the current numbers.

Pros and Cons

Depending on your home’s value, the circuit breaker may result in a current lower property tax bill compared to the exclusion. However, the exclusion is a permanent savings rather than deferred taxes.

In many cases, your total taxes with the circuit breaker will be higher since they’ll be based on your home’s value. However, since you or your estate only has to pay the last three years of deferred taxes, you could pay less in taxes in the long-term.

Before you choose which option to use you may want to:

  • Calculate your current property tax payment using each option

  • Calculate the deferred taxes under the circuit breaker option

  • Determine how many years you need to stay in your house for the current savings from choosing the circuit breaker option to offset the deferred taxes and interest

Disabled Veterans Exclusion

The disabled veterans exclusion is available to:

  • An honorably discharged disabled veteran

  • The unmarried surviving spouse of an honorably discharged disabled veteran

Disabled veteran generally means totally and permanently disabled due to a service-connected injury. You may also qualify if you receive benefits for specially adapted housing under 38 U.S.C. 2101

There is no age or income requirement. If you meet the age, income, or disability requirements of the other property tax relief programs, you can only choose one option.

The disabled veteran exclusion reduces your property’s assessed value by $45,000. That means the homestead exclusion (if you’re eligible) will generally give you a greater savings if your home is worth $90,000 or more.

To qualify for the disabled veteran exclusion, you must provide certification from the VA or other appropriate federal agency. You generally only need to apply once unless you move, but you must notify your local tax assessor if you’re no longer eligible.

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