Where Did All the Money Go?: The Case of the Optional Homestead Exemption

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Dick Lavine /(512) 320-0222 x 101

March 19, 2003

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The optional homestead exemption permits school districts to exempt up to 20 percent of the value of residential homesteads from property taxes. Under current school-finance rules, the state replaces one half of the revenue that school districts lose to the exemption. This provision could cost the state an estimated $224 million in 2005. Fewer than one-quarter of school districts offer this exemption. More than half of the benefit of the exemption goes to homeowners with a family income of over $90,000 per year.