In Ohio, the disabled and elderly can receive a break on their real estate taxes by applying for a homestead exemption.  The exemption is generally available to Ohio residents who are disabled or at least 65 years old, who own and occupy their home and meet certain income thresholds.  For a title abstractor, it is important to note on the search that the taxes have been reduced by a homestead exemption so that the escrow agent can calculate taxes properly for a new owner - who may not qualify for the exemption.  It is also important to note when homestead may be ending without a transfer of title, such as may happen when a homeowner passes away but their estate has not conveyed the real estate.

Read on for more information about homestead, and an example that can catch an abstractor and escrow agent off guard. 

As mentioned above, the homestead exemption is available to Ohio residents who own and occupy their home.  But the definition of "owner" is broad enough to include a vendee in possession under a purchase agreement or a land contract, a mortgagor, a life tenant, and a settlor of a revocable or irrevocable inter vivos trust holding the title to a homestead occupied by the settlor as of right under the trust."  So, it doesn't necessarily have to be the the record title holder that qualifies for the exemption.

The owner must be at least 65 years old, or turn 65 years old in the year for which they apply, or be totally and permanently disabled as of January 1 of that year.  The exemption may also be available to a surviving spouse of a person who was receiving the homestead exemption, if that surviving spouse was at least 59 years old on the date of death.   

And for new applicants since 2014, the exemption is only available to those with an Ohio Adjusted Gross Income, including a spouse's income, under a certain threshold.  In 2018 the threshold is $32,200. It is adjusted annually for inflation.  

Assuming an applicant meets all of those requirements, the exemption excludes up to $25,000 of the market value of their home - including their dwelling and up to one acre of land - from all local property taxes.  For example, if the home is valued at $100,000 it will be taxed as if it were only worth $75,000.

Real estate taxes in Ohio are in arrears, so taxes for the first half of 2017 will be due in February or March of 2018. When an abstractor reports taxes on a title search it usually looks something like this:  "Taxes in the amount of $633 for 2016 are paid, taxes for 2017 are a lien, not yet due and payable; tax bill reduced by a homestead exemption."  And typically the current year's tax information is not available - the abstractor is always reporting last year's taxes because that is what the county is currently collecting. 

Conventional wisdom has always been that if a property is on homestead, it will remain on homestead until it transfers.  But, that is not necessarily the case.  Because homestead is only available for an owner's home that the owner occupies - the exemption will not be applied the year after he dies, regardless of whether his estate has done anything with the transfer of the property.

EXAMPLE:

Joe Smith is 68 years old and receives the homestead exemption.  He passes away in December of 2016.  Because taxes are in arrears, the exemption will be applied for tax year 2016, which is collected in 2017.   

Joe Smith's estate is opened in July of 2017.  In November, the executor finds a buyer for the house.  The title abstractor reports taxes on the search like this:

"Taxes in the amount of $633 for 2016 are paid, taxes for 2017 are a lien, not yet due and payable; tax bill reduced by a homestead exemption."

The escrow agent schedules a closing for December and knows that taxes will be due soon.  So, the escrow agent collects $633 to take to the county treasurer to pay the taxes.  A few weeks after the closing, the county has the tax bills ready - the escrow agent takes the check to the courthouse to pay the taxes.  Now, it is discovered that because Joe died in 2016 - the 2017 taxes do not get the benefit of the homestead exemption.  The tax bill is $1,033.  The escrow agent is $400 short. 

Although everyone expected that the homestead exemption would continue until title was transferred, it did not.  Apparently, in recent years the State has been notifying the county auditors of deaths so that homestead can be removed before title transfers.  This particular county notes on their tax screen "Homestead Exempt Ending," but this notation doesn't print with the tax bill.  The abstractor didn't think much of it because she was reporting 2016 tax year - not 2017.  And, although the abstractor showed the pertinent information from the estate, including the date of death, the escrow agent still assumed that the homestead exemption would continue until the estate sold the property - because the county still showed Joe Smith as the owner.  

Fortunately, Joe's heirs were understanding and they paid the additional $400 when they were notified of the error.  Otherwise, who would have been liable?

I point this out because this is an unusual situation that can be avoided if you know what to look for.  Regardless of whether the county clearly indicates that a homestead exemption is ending - if you find an estate and the taxes show homestead, pay attention to the date of death and expect that the homestead will be ending the following tax year.