All homeowners are responsible for real property taxes collected by the local taxing authority. The antiquated legal terminology for this type of tax is an ad valorem tax, which is defined as a property tax based on the assessed value of the property, which may or may not be equivalent to its market value. The local taxing authority assesses the value of your home or other real property and charges you a tax based on the applicable tax rate. You can also make a timely appeal of an assessed value determination. There are many programs and regulations in North Carolina which provide for a reduced rate, exclusion, or deferment of ad valorem tax. These various regulations and programs are found in Chapter 105 of the North Carolina General Statutes.
Of note for many North Carolinians, ad valorem taxes are deferred for many types of present uses such as agriculture, forestland, horticulture, and wildlife conservation. There are detailed eligibility requirements for each program which hinge on factors such as acreage, ownership and income produced. But the general idea is that real property which meets certain present use requirements may receive a deferment of ad valorem taxes on such portion during such use.
In this blog, however, I wish to summarize and focus on the exclusion programs which are available for the homesteads of elderly/disabled individuals and disabled veterans who meet certain criteria. These programs allow for the outright exclusion, as opposed to deferment, of a portion of ad valorem taxes for the primary residence of qualified owners.
The elderly and disabled program excludes the greater of $25,000 or 50% of the assessed value of the homestead and up to one acre of land on which it sits. A qualifying owner is 65 years of age or older or totally and permanently disabled, a resident of North Carolina and has income not exceeding the income limit for the preceding year (this amount changes based on cost of living and the federal poverty guidelines and was $31,900 for 2021). For disabled veterans, up to $45,000 of the assessed value can be excluded. To qualify, you must be a veteran discharged under honorable conditions who has a total and permanent disability that is service-connected or receive benefits for specially adapted housing under 38 U.S.C. 2101. Both programs must be timely applied for and are not automatically awarded.
If you potentially meet these requirements or expect to in the future, it is important to discuss this with your estate planning attorney. If proper planning is not undertaken, certain estate planning strategies involving conveying homestead property to a trust or adding third parties as an owner of your homestead may unintentionally disqualify you from these programs. With proper techniques, you can still engage in estate planning involving your homestead while maintaining eligibility for these programs.