PA Homestead and Farmstead Exclusions

Saving money on taxes goes beyond taking the deductions and allowances included on forms used to file your income tax return. If you own a permanent resident or farm in Pennsylvania, you will want to understand the details related to the Pennsylvania homestead and farmstead exclusions.

Pennsylvania property owners who qualify for a homestead or farmstead exclusion may be able to reduce their real estate taxes by completing an application and filing it with their county assessment office. Deadline for filing the application is March 1 and within 30 days applicants will be notified if they qualify for a real estate tax reduction. When enacted, approved applications were good for three years but many counties are not enforcing a renewal/reapplication process.

In order to better understand the implications of this tax benefit, it will be helpful to have some background on Pennsylvania real estate taxation. With a decentralized system of municipal governments (ex. boroughs, cities, townships, counties) and 500 public school districts, property taxes have been their traditional revenue source. Recognizing that relying on real estate taxation as a sole source of funding can cause an unfair tax burden on low-earning landowners and senior citizens, alternate funding sources have been explored.

Numerous statewide reforms aimed at shifting the tax burden to other sources have included sales and wage taxes while still trying to preserve voter’s taxing decisions locally. The 2009 Taxpayers Relief Act or SS Act 1 included the homestead and farmstead exclusions which were elements of earlier reforms.

Pennsylvania property taxes are not based on the sales value of your real estate, but rather the assessed value. This is often broken down in terms of the land value and includes any improvements such as buildings. Each county has an assessment office who periodically conducts a county-wide property assessment for the purpose of maintaining accurate assessed values.  Property taxes are then established as a millage rate or percentage of the assessed value. For example if your property value is $100,000 and your local taxing body uses a 25 mill rate then your property tax bill would be $100,000 x 2.5% =$2,500. Another way to understand mills is to divide the mills by 10 (move decimal point to the left by one) to convert mills to percentage.

A homestead exclusion or farmstead exclusion reduces the assessed value of your property and, therefore, you owe less tax. In order to remain responsive to various factors, under Act 1, the tax relief amount for homestead exclusion will be different each tax year and varies among school districts, depending on two things: whether the school district levies new types of taxes to replace revenues lost through property tax reform, and whether the school district decides to accept state revenue from gambling.

 Additional information on these exclusions is available on the PA Department of Community and Economic Development website.