A significant part of any move, relocation, addition of 2nd home, or estate plan involves taxes; income taxes & property taxes for starters. Hence, below is a primer how to not accidentally double your property tax bill, or conversely, overpay if not need be.

Definitions:

Principle residence: Plan to return after ‘short absences’. Assessor will look at: min 6 months per yr occupancy, mail, driver license, voting registration, utility usage consistent.

Entities:

Trust will allow PRE to the grantor in most situations. Does not apply to family LLC’s or other entites. A residence that has been transferred into a Limited Liability Company, a Partnership, or some other legal entity will cease to be qualified for the principal residence exemption.

Deadlines:

May 1 for summer tax bill, Nov 1 for winter tax bill.

Scenario #1: 2 principle residences

• Both are claimed as principle – one owner/person
  • Best to rescind one no matter if it is across town, across the state, or across the country.
• Both are claimed as principle – two owners/persons
  • What address and filing status (‘joint’ or ‘separate’) do they file on 1040?
  • Can you demonstrate per ‘principle residence’ definition above that it is indeed your princ. res.?
  • From linked article below: ‘…What if you are husband and wife? State and Federal laws are nothing if not unclear about this distinction. The general approach is that we treat married couples as a single unit. However, … for purposes of the principal residence exemption, if a husband and wife file a joint (MFJ) income tax return, they are entitled to one exemption for their “marital unit.” However, if they file separately (MFS), they may each claim an exemption. Beware, however, that they will still have to demonstrate the “intent” reality discussed above. In most cases, unless the parties are separated, that will be pretty difficult to do….’

Scenario #2:  Short term renting our residence

Even though ‘guidelines’ suggest if a property is rented > 14 days per year it is not a ‘principle’ residence, this is inconsistent with recent court rulings and the source law:

• ‘… Concerned about losing your homestead exemption because you have been renting your home for more than 14 days per year? Fear not, as the Michigan Court of Appeals recently ruled in the taxpayer’s favor on this issue. Michigan’s Principal Residence …’
  
• Per statue: ‘ … the MCA ruled “the PRE guideline provision relied on relied on by the Tribunal is erroneous and inconsistent with the GPTA (Michigan General Property Tax Act – added).  Renting one’s home for more than 14 days does not disqualify a homeowner from the PRE.” …’

Scenario #3:  Current house for sale, new house already purchased.

• State of MI realized homes are not always bought/sold simultaneously. Further, during ‘down’ markets – or slow times of the year – homeowners may wish to time the sales process of the old home. Hence, you may have an ‘on-market’ home still receiving a PRE for up to 3 yrs.

Forms:

• Principal Residence Exemption (PRE) Affidavit, Form 2368
• Conditional Rescission of Principal Residence Exemption (PRE), Form 4640

Links for further reading:

• The State of MI ‘guidelines’ (note, not law) – Principal Residence Exemption (PRE) Guidelines
  • How ‘guidelines’ are not law – (e.g. Short term rental of home) – http://www.fraserlawfirm.com/blog/2017/12/michigans-principal-residence-exemption-and-short-term-rentals/
• http://michiganestateplanning.blogspot.com/2012/05/michigan-property-tax-personal.html
• Estate planning – http://michiganestateplanning.blogspot.com/2018/01/do-tod-and-pod-designations-really-work.html
• How to survive a PRE challenge – https://www.mlive.com/business/west-michigan/index.ssf/2015/05/lake_michigan_home_owner_wins.html

Please seek you own professional legal, tax, real estate, and insurance advice – not to the reliance of this article.

Homeowners who are selling their homes, but moved into another home elsewhere in the State, get to have two principal resident exemptions. …the St of MI Act provides that an owner may retain an exemption for up to 3 tax years on property previously exempt as principal residence if that property:

• is not occupied;
• is for sale;
• is not leased; and
• is not used for any business or commercial purpose

Big penalty for not rescinding when the old home is sold.

We complete this form free for clients that have retained us under buy/sell brokerage, minimal fee for others.

SEV DROP:

Crazy but true. We’ve been filing for refunds when sellers have a:

• Lower SEV when they sold than when they bought
• Sell for less than or equal to: Actual Cash Value ( ACV is SEV X 2 in most locations – sell for more and no refund available)
• Home has always been homestead/main residence/ non rental property

How much will be saved ?

• the state .075% portion of your .086% at closing transfer tax

Whats needed ?

• Proof of SEVs on the way in and out

Can I guess ?

• 20 % penalty if you are wrong ( plus our fee wasted )

There are useful applications to this for buyers/ sellers/ investors.

MULTIPLE PRINCIPLE RESIDENCES:

If you are a seller and have moved into a new home awaiting a sale on the old home, you may qualify for principle residence exemption on BOTH homes whilst you await the sale.

Only makes sense.