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by Minnesota Attorney Patrick K. Oden

Minnesota Special Homestead Classification:
Property Tax Relief for People with Disabilities

If you are a Minnesota homeowner and have a disability, or a relative with a disability lives with you, then you may be eligible for Special Homestead Classification based on disability. If you qualify, your home will be taxed using special rules that will ease your tax burden.

Property tax is unusual since the amount you pay is not necessarily proportional to how much you earn or consume, as income and sales taxes generally are. You may have bought or inherited a home when it was worth less money, but now the property's value has increased dramatically. Perhaps you bought your home when you were earning a large salary, and later you became disabled and had to give up your job. For whatever reason, the property tax on your home may be unmanageable in your current situation. Minnesota tax law provides some relief to disabled residents against rising property taxes.

All property located within Minnesota is subjected to taxation—unless specifically exempted. Determining the amount of tax depends on two factors: 1) property classification, and 2) property assessment.

While property value assessment is subjective—therefore difficult to dispute—classification should be objective, based on the statutory guidelines.

Benefits of Disability Classification

Special classification results in a reduction in the homeowner's tax bill. The 2006 tax code states that, for residential property of class 1a, “[t]he first $500,000 of market value of class 1a property has a [tax] rate of one percent of its market value.” An assessor determines market value, or how much the owner could expect to sell the property for at the time of assessment. Property value in excess of $500,000 has that excess taxed at 1.25 percent.

But under the special classification, class 1b, the first $32,000 of market value is taxed at only 0.45 percent. The remaining market value is taxed at normal rates.

Let's compare the property taxes due in 2006 on a class 1a homestead valued by a county assessor at $100,000 and the same property reclassified as class 1b. This comparison does not include other taxes that may apply, such as local school district levies.

Class 1a property is taxed at 1 percent of the $100,000 market value for a total of $1000. The class 1b property is taxed at two separate rates: 0.45 percent of the first $32,000 of market value and 1 percent of the remaining $68,000 of market value. The total amount due totals $824.

The $176 tax bill reduction amounts to a savings of 17.6 percent. As the value of the property increases, the proportion of savings will decrease. A homestead valued at $200,000 will see a savings of 8.8 percent.

Who Qualifies for Reclassification

To qualify for class 1b, the owner or related resident must be permanently and totally disabled. Individuals with partial or temporary disability will not qualify. Proof of disability must be provided in the form of a letter or other document from a qualified agency that has already determined that you are permanently and totally disabled. The Department of Revenue suggests using the copy of the initial letter from the agency that approved your benefits. Affidavits from yourself, family members, or physicians are not accepted.

How to Apply for Reclassification

To have your property's classification changed under the disability qualification, you must apply using a Minnesota Revenue form designated PE12.

You may complete this form yourself, or contact an attorney for help with preparation. Once completed, mail the application to the Minnesota Department of Revenue at the address provided on the form.

The Department of Revenue notes that decisions may take four to six weeks. If your classification is changed, your home will remain in the program for as long as you own your home or the disabled relative lives with you. However, if you move to a new home, then you will have to reapply for a new special homestead classification.

The application deadline for 2007 is October 1, 2006. If you do not file your application by this deadline, your homestead classification may not be changed for the next year.