Definition
Non-homestead property refers to real property not used as the owner’s primary residence and, therefore, does not qualify for homestead exemptions or other property tax benefits. These properties usually have higher taxes, fewer legal protections, and are reassessed more often than homesteaded properties.
Types of Non-Homestead Real Property
Non-homestead properties include a wide range of residential properties and commercial investments that do not meet the requirements for homestead classification. Examples include:
1. Rental Properties
A homeowner who owns a second house leases it to long-term rental tenants.
A short-term rental property listed on platforms like Airbnb or Vrbo that generates income but does not serve as the owner’s primary residence.
2. Commercial Properties
A shopping center with multiple retail tenants.
An industrial or office building owned by an investor and leased to professional businesses.
3. Second Homes and Vacation Homes
A lakefront cabin used seasonally by the owner but left vacant for most of the year.
A condo in a resort town, which is occasionally rented out but primarily kept for personal use.
4. Vacant Land & Investment Properties
A developer purchases an empty lot with plans to build and sell a residential home.
An investor holding onto land in a rapidly growing area, expecting a market value increase before selling.
Taxation and Financial Impacts of Non-Homestead Properties
One of the most significant differences between homestead and non-homestead real property is how they are taxed. Annual property tax assessments are often higher for non-homestead properties because they do not qualify for property tax exemptions on a portion of the owed property taxes.
For example, in many jurisdictions, homesteaded properties receive property tax caps that limit how much their assessed value can increase yearly. A homesteaded property might have a capped increase of 2% annually, while a non-homestead real property can be reassessed at full fair market value each year, leading to a larger tax bill.
Imagine an investor owning a non-homestead rental property assessed at $300,000 last year. The local tax rate is 2% of the assessed value.
Year 1: Assessed Value = $300,000
Property Tax = $300,000 × 2% = $6,000
Due to a real estate market boom, property values in the area increased significantly. Since non-homestead real property has no cap on annual assessment increases, the county reassessed the property at $360,000, reflecting a 20% market value increase.
Year 2: Assessed Value = $360,000
Property Tax = $360,000 × 2% = $7,200
Now, let’s assume that instead of a non-homestead property, this was a homesteaded primary residence in the same area. The jurisdiction has a tax cap limiting annual increases in assessed value to 2% for homestead properties.
Year 1: Assessed Value = $300,000
Property Tax = $300,000 × 2% = $6,000
Year 2 (Capped Increase of 2%): Assessed Value = $306,000
Property Tax = $306,000 × 2% = $6,120
Key Takeaways From Homestead vs. Non-Homestead Example:
The non-homestead rental property owner experiences a $1,200 tax increase due to the market value increase and lack of a tax cap.
The homestead property owner benefits from the annual property tax assessment cap, paying only $180 more instead of $1,200 more in property taxes.
Over time, these differences in assessment limits can lead to significant savings for homeowners who qualify for homestead exemptions.
Ownership, Legal Title, and Property Classification
To qualify for homestead tax benefits, property owners must prove that they hold legal title to the home and that it is their primary residence. If a property is classified incorrectly, owners may pay more taxes than necessary or face penalties for misrepresentation. Property owners should regularly review their property classification to ensure they are receiving the correct tax benefits.
Conclusion
Understanding the distinction between homestead and non-homestead real property is essential for owners looking to effectively manage their property tax bills.
Non-homestead properties — such as rental homes, commercial buildings, and investment properties — typically face higher tax burdens due to annual property tax assessments based on fair market value, with no caps on assessment increases.
To reduce tax burdens, property owners should verify their legal title, explore exemptions, and stay informed about property tax trends. Proactive planning can lead to substantial savings for homeowners and investors.
Save On Your Property Taxes
Regardless if you own a home or have investment properties, there are opportunities to reduce your property taxes and save money. Homeowners can apply for a homestead exemption. For those who qualify and didn’t apply for a homestead exemption, Ownwell can retroactively apply for your homestead exemption and other tax exemptions for up to three years.
Furthermore, homeowners and property owners can appeal their taxes. At Ownwell, we combine proprietary technology and local tax experts to file a property tax appeal on your behalf! We save customers an average of $1,148 on their property tax bills. Even better, you pay only 25-35% of the total savings if we save — there’s no risk involved! Homeowners, start your property tax appeal today! And commercial property owners, see how much you can save!