While the homestead exemption will reduce property taxes by exempting a certain amount of a home’s value from taxation, it will be short-lived if local governments are not given a spending limitation.
Iowa lawmakers responded to constituent complaints of rising assessments and growing property tax bills with the most comprehensive property tax reform package in over 30 years. One specific change within this legislation (HF 718) was aimed at lowering the property tax burden for seniors through a new homestead exemption. This benefit will not be delivered to seniors automatically, though, and action is required on the part of the homeowner to receive the additional exemption.
Homestead programs are among the most common approaches to property tax relief and are used nationwide by 33 different states. Even before Governor Kim Reynolds signed this year’s legislation into law, Iowa offered a homestead credit which reduced a homeowner’s tax bill directly; that credit remains in place. The new policy applies to homes owned and lived in by Iowans 65 years and older as of January 1, 2023, and creates a homestead exemption.
Exemptions reduce property taxes (in most cases) by exempting a certain amount of a home’s value from taxation. The new law provides a $3,250 exemption for the most recent assessment done in 2023. This means seniors will see initial relief on their property tax bills in the fall of 2024 and spring of 2025. It will then increase to $6,500 for the 2024 assessment year.
The downside to this relief program is that it is more taxpayer-active than other forms of tax relief because taxpayers must apply for their relief. The Iowa Department of Revenue announced that those who qualify can now file their paperwork to receive the new exemption. [Ed Note: This is the form that must be completed and submitted to the local assessor.] Taxpayers meeting these criteria must go to their local assessor by July 1, 2023, to receive the homestead exemption. This means Iowa’s roughly 566,490 seniors, or 17.7% of the state’s population, have a month and a half to claim their property tax relief.
While this new policy will provide relief soon, it will be short-lived if local governments are not given a spending limitation. After 1937 when the original homestead credit was enacted, it took city, county, and school taxing districts only a few years to increase their spending enough to completely offset a homeowner’s entire credit. History will replay itself if local governments are not subjected to a hard spending cap to prevent the erosion of this exemption and other relief efforts included in the new legislation.
We are optimistic that additional restraints will be placed on the ability of local governments to spend your tax dollars. Iowa lawmakers have said this bill is the first step in addressing property taxes and they plan to revisit the issue during future legislative sessions.
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