A homestead exemption is an exemption from a tax on real property. The Tennessee homestead exemption is stated in Tennessee Code Annotated Section 26-2-301; the state has substantially increased the amounts of the exemption effective January 1, 2022.
The amended statute provides that a parcel owned by an individual and used by them, their spouse or a dependent as a principal place of residence has an exemption not to exceed $35,000. If a married couple jointly owns and uses the parcel, the total value of the exemptions combined is $52,500.
If a married couple files for bankruptcy and wants to claim the homestead exemption so the homestead does not get sold to pay off their debt, the amount is divided equally among the spouses. If only one of the joint owners of real property is named in the petition for bankruptcy, their homestead exemption is $35,000.
Tennessee Homestead Protection Rules
The homestead exemption is not subject to:
- Execution (a tax or fee imposed against the property)
- Attachment (transfer to a creditor)
- Sale under legal proceedings during the life of the individual
When the individual who is the head of a family dies, the surviving spouse and their minor children can claim the exemption so as long as they use the property as a primary residence.
If the individual has a spouse, the homestead exemption shall not be alienated (conveyed) or waived without the joint consent of the spouses. The homestead exemption cannot be applied against federal, state and local property taxes. It also cannot be used to satisfy a debt incurred for the purchase money of the homestead or for improvements on it.
Further, the exemption cannot be used to satisfy a debt that the homestead incurred when the parties waived the exemption in a written contract. In other words, even if the parties contract to have the homestead exemption satisfy a debt for the household, this part of their contract cannot stand because it goes against the public policy of the state.
Conveying Property Where an Owner Has a Homestead Exemption
Certain legal instruments can convey property in which an owner has a homestead exemption. These include:
- A deed
- An installment deed (deed for the purchase price plus interest to be paid in installments)
- A mortgage or deed of trust (transfer of legal title to a third party like a bank, to hold until the borrower repays their debt to the third party)
When an instrument conveys the property to the new owner, it conveys the property free of the homestead exemption. This means that the previous owner – the person conveying the property – does not retain the homestead exemption after the sale.
No Waiver of Homestead Exemption for Debt
A borrower cannot waive the homestead exemption in a legal instrument that evidences a debt.
For example, a borrower cannot waive the homestead exemption in a note, an agreement between a borrower and a lender, in which the borrower agrees to satisfy the debt to the lender.
This means a borrower and a lender cannot form a contract to waive the borrower's homestead exemption.
In addition, the borrower cannot waive the homestead exemption in an instrument that does not convey property but claims the homestead exemption.
How to Take a Homestead Exemption Under Tennessee Law
As of 2022, in the state of Tennessee, an individual taxpayer who is a property owner may deduct up to $35,000 on their state tax return as the homestead exemption amount. Spouses may deduct up to $52,500 if they file jointly.
Another use of a homestead exemption is that an individual or a married couple can claim a homestead exemption when a creditor attempts to put a lien on their real property to satisfy a debt.
Homestead Laws and Bankruptcy Debt Relief
In a Chapter 7 bankruptcy, the debtor’s estate is liquidated to pay their creditors. One of the bankruptcy exemptions that homeowners can claim is the homestead exemption.
Individual Tennessee residents can claim up to $35,000 in the equity of their home, while married couples can claim up to $52,500 of their home equity. A petitioner filing for bankruptcy must declare the homestead exemption on their bankruptcy petition.
In a Chapter 13 bankruptcy, a wage earner’s plan, the debtor develops a three-to-five year plan to repay all or part of their debts. A homeowner can claim the value of their homestead exemption as exempt property. They also can keep the nonexempt equity of their home, meaning the entire value of their house if they pay an amount equal to the nonexempt portion through their Chapter 13 repayment plan.
Seniors and Tennessee Property Taxes
In 2007, the state's Property Tax Freeze Act established a property tax freeze for qualified Tennessee taxpayers 65 years or older. The act also authorized the legislative body of any county and/or municipality to implement a local option property for taxpayers 65 and above. The program allows qualifying homeowners to have the property taxes on their principal residence (primary home) frozen at a base tax amount.
The base tax amount is the amount they owed in the year in which they first qualified for the program. As long as owners continue to qualify for the program, the amount of property taxes due on that property usually will not change.
This is true even if there is a property tax rate increase or a county-wide reappraisal. Seniors do not stop paying property taxes in Tennessee, but they can have the amount of their taxes frozen as described.
Qualifying for a Property Tax Freeze
In order to qualify for the property tax freeze, a senior homeowner must:
- File an application every year.
- Own their principal place of residence in a participating county and/or city.
- Be 65 years of age or older by the end of the year in which they file their application.
- Have an income from all sources that does not exceed the county income limit established for that tax year.
Qualifying homeowners in participating counties or municipalities should submit applications for the property tax freeze to their county trustee or city collecting official. The state comptroller’s office calculates the income limit for each county annually, using a formula outlined in state law.
The base tax amount changes for a homeowner if they make improvements to the property that result in an increase in value or if they sell their home and purchase another. The tax freeze is available only for a principal place of residence of a qualifying homeowner located in a participating county or city.
Additional Information on Homestead Exemption Laws
The homestead act in Tennessee is contained in Title 26, Chapter 2, Part 3, of the Tennessee Annotated Code. This portion of the state code is titled “Homestead Exemptions.” Tennessee does not have a tax on homestead exemptions.
The homestead exemption allows a taxpayer to take a deduction on their tax return. Tennessee offers homeowners and older adults more measures to protect a homestead than do many other states.
Jessica Zimmer is a journalist and attorney based in northern California. She has practiced in a wide variety of fields, including criminal defense, property law, immigration, employment law, and family law.