HF3608

Purpose

This bill modifies how a homeowner’s property tax value is reduced for a primary home (the homestead) through a market value exclusion. It changes the way the exclusion is calculated, when it applies, and how it interacts with other property classifications and ownership/occupancy situations. It also clarifies how to treat accessory dwelling units (ADUs) when computing the exclusion.

Main provisions

• Eligibility and scope

  • The exclusion applies to the house, garage, and surrounding one acre of land on property areas classified as specific homestead-related classes (4d2; class 1a or 1b; and the portion classified as class 2a that includes the house, garage, and the surrounding one acre).
  • The exclusion is determined before calculating the property’s net tax capacity under the applicable statute.

• Exclusion amounts (tiered)

  • If the homestead value is $95,000 or less: exclusion equals 40% of market value.
  • If the homestead value is greater than $95,000 but up to $517,200: exclusion equals $38,000 minus 9% of the value over $95,000.
  • If the homestead value is $517,200 or more: there is no market value exclusion.

• Calculation rules

  • The exclusion amount must be rounded to the nearest whole dollar and cannot be negative.
  • Any valuation exclusions or adjustments under section 273.11 must be applied before determining the homestead valuation exclusion.

• Partial homestead and ownership rules

  • If a property is partly homestead and partly nonhomestead, the exclusion applies only to the homestead portion.
  • If nonhomestead status exists due to ownership or occupancy issues (not all owners occupy, not all owners have qualifying relatives occupy, or not all spouses occupy), the exclusion is initially calculated as if the entire property were homestead and then prorated by the owner-occupants’ share.
  • If an owner-occupant spouse does not occupy the property, the spouse’s ownership percentage for the purposes of the exclusion is half of the couple’s ownership percentage.

• Accessory dwelling units (ADUs)

  • In certain cases, the value of an ADU must be excluded when calculating the value of the exclusion: 1) Property classified as class 1a or 1b (subdivision 22). 2) The portion of property classified as class 2a (the house, garage, and surrounding one acre). 3) Property classified as class 4d2 (subdivision 25, paragraph e, clause 2).
  • ADU definition: a secondary dwelling unit that is within or attached to the principal homestead or in a detached accessory building on the same parcel.

• Definition included in the bill

  • Accessory dwelling unit means a secondary dwelling unit to a principal homestead dwelling, located within or attached to the principal dwelling or in a detached accessory building on the same parcel.

Significant changes to existing law

• Replaces/adjusts the existing homestead market value exclusion structure with a precise tiered formula based on current market value, including a cap where no exclusion applies above $517,200.
• Explicitly requires applying other valuation exclusions or adjustments (273.11) before applying the homestead exclusion.
• Introduces prorated treatment for properties that are partially homestead and partially nonhomestead, including occupancy-based adjustments for spouse occupancy.
• Adds a defined treatment for ADUs, specifying when the ADU’s value must be excluded from the calculation of the exclusion in multiple specified property classifications.
• Clarifies ownership-occupancy rules when determining the applicable exclusion, including a specific rule that if a spouse does not occupy, the owner-occupant spouse’s share is effectively halved for the calculation.

Definitions and key terms (from text)

• Homestead market value exclusion
• Market value exclusion
• Accessory dwelling unit (ADU)
• Classifications: 4d2, 1a, 1b, 2a
• Owner-occupant
• Nonhomestead
• Valuation exclusion
• Section 273.11 adjustments

Relevant Terms - Homestead market value exclusion - Market value exclusion - Accessory dwelling unit - Class 4d2, 1a, 1b, 2a - Owner-occupant - Nonhomestead - Valuation exclusion - Section 273.11 adjustments