The legal significance of a homestead is the privilege of a homeowner to remain in his home, even in the face of creditor claims or bankruptcy. For this purpose, a homestead includes the family home, the real property on which it sits, and any out buildings or appurtenances. Because the purpose of the homestead is to protect a family from homelessness, an individual cannot have more than one homestead at a time, and must live in the property to claim the homestead protection. To explore this concept, consider the following homestead definition.

Definition of Homestead


  1. A dwelling, and the land on which it sits, used by a person or a family as their primary residence.
  2. A statue created in order for a person to request a homestead exemption to lower their property taxes, or to protect the dwelling from creditors.


1862     Enacted by Congress, signed into law by President Lincoln signed on January 1, 1863

What is a Homestead

Originally, the Homestead Act of 1862 allowed pioneering individuals and families to stake a claim to a piece of property as their own by building a home, and staying on the land for a specified period of time. The modern homestead exemption protects a family’s home from being seized, or from a forced sale, due to financial or credit issues. Although a modern homestead is still referred to by its traditional concept of a land estate, modern statutes actually create a monetary exemption from creditor action, the amount of which varies by state. Many states also allow a homestead exemption in specified amounts for tax relief in certain circumstances.

History of the Homestead Act

As the American West opened up in the mid-1800s, wealthy land entrepreneurs made huge land grabs, clearing and farming on a scale that required the use of slave labor. In 1848, the Free Soil Party, and the newly birthed Republican Party, lobbied heavily for land in the West to be made available to independent farmers and ranchers, fearing the creation of an elitist class taking complete control of the nation’s new territory. Southern Democrats of the time had vehemently fought against previous homestead laws, fearing the offer of “free land” would attract more immigrants from Europe, and bring “poor Southern whites” to claim homestead farms in the West. Once the South seceded from the Union in 1861, taking their Congressional delegates with them, the Homestead Act of 1862 was passed.

The first Homestead Act to pass brought by Congress required settlers of the land to pay 25 cents per acre. President Buchanan vetoed that bill in 1860, sending it back to the drawing board. Two years later, Abraham Lincoln signed the Free Homestead Act into law and it went into effect on January 1, 1863. The Act allotted any person over the age of 21, or any head of household, 160 acres of land, as long as they lived on that land for five years, and paid just $18 in fees, which compares to about $550 today. Claiming a piece of land and paying the fee were not enough, however, to gain title through a homestead, as the individuals were required to build a home on the land, and to make other improvements, such as additional buildings, clearing the land for farming, and even building fences. While required improvements were not specified by law, the intent was for the person to make it obvious that he was holding and working the land.

This early Homestead Act provided another way for people to stake a claim, by paying $1.25 per acre, after they had lived on the land for a continuous six months. Civil War veteran and physician, Daniel Freeman, was the first to file a claim under the newly passed Homestead Act of 1862. Freeman’s homestead farm remains in Nebraska, as the Homestead National Monument.

Changes to the Homestead Act

In 1912, the amount of time a homesteader had to live on the land claimed was reduced by Congress from five to just three years, though by this time, there was little land remaining that could be claimed. As such land disappeared, the Federal Land Policy Management Act of 1976 was enacted, effectively ending homesteading in the traditional sense, except for in certain areas of Alaska, where homesteading continued for several more years. The ability to claim land by homesteading came to a complete end in the 1980s, homestead laws still strive to protect individuals and families from having their home taken from them.

Declaration of Homestead

A Declaration of Homestead is a legal document that must be filed with the county registrar, or county assessor, declaring a home as the filer’s principal residence, in order to protect it from being seized to satisfy debts. Filing a Declaration of Homestead does not provide blanket protection of the home or property against all debts. For example, if the homeowner uses the home’s value as collateral for a secured loan, the lender can seize the home if the borrower defaults.

A Declaration of Homestead provides only partial protection against seizure for overdue taxes, the specifics of which vary by state. Generally speaking, the homeowner is allowed to claim the amount allowed by homestead laws as protected, but the remaining value of the property may be subject to seizure.

A Declaration of Homestead is filed by the head of household, and covers all members of the family residing within the home. The specifics of a Declaration of Homestead form vary by jurisdiction, but it is generally required that the person filing the document swear to the fact that the home is indeed their primary residence. As of 2015, only four states do not extend homesteading rights, and a handful of states that do provide these rights do not require that a Declaration of Homestead be filed.

Homestead Exemption

A homestead exemption protects a surviving spouse from seizure of the home by creditors or tax liens following the death of a homeowner spouse. In some states, such a homestead exemption is automatically provided for in the state’s Constitution, other states require the homeowner to file a claim requesting the homestead exemption. Laws concerning homestead exemptions vary by state, but the goal of forcing people out of their homes through seizure or forced sale remains the same. Ultimately, the goal is to shelter individuals experiencing financial difficulties following the death of their spouse. Homestead laws provide that, if the individual moves out of the home, or begins living elsewhere, he is likely to lose the homestead exemption.

The amount of protection offered under a homestead exemption varies greatly, with most states protecting property only up to a certain value. In cases where the home’s value homestead exceeds the homestead exemption limit, a creditor can proceed with a forced sale, but the homeowner keeps the portion of the sale price that is equal to the exemption.

Example 1 of Homestead Exemption

Ned and Amy own their home in Nevada, and have filed a homestead on their property. The house is valued at $425,000, and Nevada’s homestead exemption amount is $550,000. The couple owes debts in the amount of about $200,000 when they file bankruptcy. Because the couple’s home is protected up to a value of $550,000, which exceeds its actual value, they will likely be able to keep their home.

Example 2 of Homestead Exemption

Ben owes $35,000 in unsecured debt on a credit card, for which the creditor has obtained a judgment, which allows the creditor to force the sale of Ben’s home to satisfy the debt. Ben claimed a homestead exemption, however, which protects his equity up to $40,000. The home is valued at $200,000, and is subject to a mortgage with a balance of $180,000. Because there is only $20,000 of equity value on the home, which is less than the homestead limit, the credit card company cannot force the sale of Ben’s home.

Homestead Tax Credit

Many states provide for a homestead tax credit on property that has been declared a homestead. The tax credit assists the homeowner by reducing the amount of property tax owed each year. In most jurisdictions, the amount of the homestead tax credit is based on the amount of property taxes and the household’s total resources, but the laws vary by state. In order for a person to claim the homestead tax credit, certain requirements must be met. For example, as of 2012 in Michigan, a person can claim the homestead tax credit if:

  • The homestead is located in the state and he has lived in the home for at least six months
  • He owns, or is under contract to rent and occupy the home on which the taxes are levied
  • The taxable value of the property is less than $135,000
  • The total household resources do not exceed $50,000

For example, if Bob’s house is valued at $250,000 and the state in which he lives allows him to claim a homestead tax credit of $25,000, he would only have to pay taxes on $225,000.

In most states, a person is required to file for the property tax credit on his individual income tax return each year. In a handful of states, including Kentucky, if a person 65 and over has been approved for the homestead tax credit, it is automatically applied each year, and it is not necessary to apply each year.

Other Benefits of the Homestead Tax Exemption

In some states, the homestead tax credit offered to homeowners applies to more than their property taxes. For example in Michigan, the tax credit exempts homeowners from paying the portion of their property taxes bookmarked for the operation of local schools. In New York, homesteaders over the age of 65 may also be exempt from paying school taxes.

Related Legal Terms and Issues

  • Bankruptcy – A federal court procedure by which individuals and entities can get rid of debts they are unable to pay.
  • Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
  • Debtor – A person who is in debt, or under a financial obligation to another.
  • Equity – The monetary value of a property or shares in a company after all debts have been paid.
  • Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical region of authority to enforce justice.
  • Tax Credit – An amount of money that a taxpayer is allowed to subtract from the amount of taxes he owes to the government.
  • Tax Lien – A charge against a taxpayer’s property due to non-payment of taxes.
  • Unsecured Debt – A debt for which no property serves as collateral of, or guarantee for, repayment.