Attorney General OpinionCornyn Answers Questions on Renting A Homestead
In Opinion No. JC-0415, issued September 26, Attorney General John Cornyn held that a residence homeowner's rental of a part of the residence to another person disqualifies that part of the home from homestead exemptions. He concluded, however, that this rental provision did not apply when the homeowner rents the entire residence to another and is absent from the residence homestead.
In the instance of renting the entire homestead, Cornyn found that rental of the property would be merely one aspect, among others, to consider. Other aspects in determining exempt status is whether the owner's absence is temporary, whether the owner has established a different principal residence, and whether the owner intends to return and occupy the property as the principal residence. He stated that rental of the entire property, by itself, does not change the residence-homestead status for homestead exemptions under Tax Code Section 11.13.
State Senator Florence Shapiro, State Affairs Committee Chair, asked questions about renting a residence homestead and continued qualification for the homestead exemptions. She addressed questions for the City of Plano that grants a 20-percent homestead exemption.
"We have found no Texas court decisions addressing any of your questions. In fact, there are surprisingly few cases dealing with section 11.13," wrote Cornyn. The opinion reviewed Section 11.13(k) and (l). Subsection (k) addresses renting a portion to another or using a portion of the home primarily for other purposes incompatible with the owner's residential use. It states that the amount of any residence homestead exemption does not apply to the value of that portion used primarily for purposes incompatible with the owner's residential use.
Subsection (l) states a qualified residential structure does not lose its character as a residence homestead when the qualified owner temporarily stops occupying it as a principal residence if that owner does not establish a different principal residence and intends to return and occupy the structure as the owner’s principal residence.
"Finally, exemptions from taxation are not favored by the law, and ‘[s]tatutory exemptions are subject to strict construction because they undermine equality and uniformity by placing a greater burden on some taxpayers rather than all," the opinion stated, with reference to numerous Texas appellate court decisions on strict interpretation of exemptions.
The opinion addressed several definitions for terms used in Tax Code Section 11.13. It held that "principal residence" is the owner's primary or chief residence that the owner actually occupies on a regular basis. The term "temporary" refers to a limited or short absence of the owner from the residence homestead, the opinion said.
Cornyn wrote: "But we cannot categorically say what the actual duration of that temporary period is or should be. In the context of section 11.13(l), "temporary" is a relative term. What constitutes a "temporary" period of absence from the residence homestead necessarily depends on the particular circumstances: the length of the home owner's absence and whether the home owner has established another principal residence and whether the owner intends to return and occupy the residence as his or her principal residence. The length of the period probably is less important than the establishment of a different principal residence and the owner's intent to return and occupy the residence as a principal residence.'
He continued, "We do not disagree with you that a period of one year or less may be a reasonable "temporary" absence in many circumstances for the purposes of section 11.13." He noted the Minnesota tax case of Schmidt v. County of Dakota, where the summarizing line of Minnesota tax cases held that absence of less than one year where owner intends to return and has not leased property is permissible, but absence of four or nine years is too long ... and that temporary absences for vacations, business trips, or hospitalizations are permissible provided dwelling is claimant's principal residence. "However, we cannot make that determination as a matter of law," he noted.
Renting portion of home
The opinion concluded that renting a part of a residence homestead constitutes a use for "purposes incompatible" with the owner's residential use.
"The apparent purpose of section 11.13 is to exempt from taxation a residence that the owner uses as his home, in other words, where the owner lives," the opinion stated. "Keeping with this apparent intent, subsection (k) preserves the tax exemption, even if a part of the residence is not used primarily as the owner's home, but only with respect to that part that the owner continues to use primarily as his or her home."
Renting the entire home
In addressing the question of whether renting the entire property constitutes a use that is "incompatible with the owner's residential use," the opinion held that the applicable provision is Subsection (l) rather than Subsection (k).
"Unlike subsection (k)'s incompatible use test, subsection (l) focuses on whether the residence remains the owner's principal residence when the owner stops occupying it," the opinion said. "Under this provision, the residence homestead status is not lost when the owner temporarily stops occupying the residence as a principal residence if the owner does not establish a different principal residence and intends to return and occupy the residence as his or her principal residence."
The opinion said that Subsection (l) does not expressly mention "rental." It said that rental of the property would be merely one aspect, among others, to consider. Others would be whether the owner's absence was temporary; whether the owner had established a different principal residence; and whether the owner intended to return and occupy the property as the principal residence.