In Alabama, a homestead exemption is available for a single-family owner-occupied dwelling and the land thereto not exceeding 160 acres. Only one homestead is granted regardless of how much property is owned within the state.
While a second home cannot qualify for a homestead exemption, there is an opportunity for a reduced assessment percentage if the property is correctly classified. Alabama classifies property using four classes with varying tax ratios applied to the assessed value. Tax ratios range from 10% to 30%.
A personal residence is Residential Property and qualifies as Class III property which is assessed at a tax ratio of 10%. Class II property has a tax ratio of 20%.
Property owners who own a second home are eligible for a Class III exemption even though not eligible for a homestead exemption. This drops the assessment ratio from 20% to 10%.
Even though a second home or a home being renovated can qualify for the Class III rate, don’t expect the taxing authoring to properly classify. It’s up to the property owner to make certain the Class is correct.
It may not make a big difference for a lake home in a rural county, but in higher tax jurisdictions, the difference can be significant.
Please contact your Dent Moses advisor if you have questions or need assistance.