Some Sellers May Be Exempt From State Transfer Taxes

An interesting discussion came up at one of my company’s (Preview Properties, Brighton, MI) recent sales meetings.  It’s that some sellers may not have to pay the State transfer tax at closing. Here’s how it works, according to Michigan Compiled Laws (MCL 207.526):

You must meet all three conditions.

1.       The home must be your principle residence and classified as homesteaded

2.       The SEV in the year you sell must be less than the SEV for the year you acquired the property

3.       The property can’t be sold for more than its ‘true cash value’ when it’s sold

So, if you bought a house in 2006 and the SEV was $74,000 and sold it in 2011 when its SEV was $68,000, points 1 & 2 above are met.  The true cash value is established by multiplying the current SEV x 2. In this case it would be $68,000 x 2 = $136,000.  If the house sold for $125,000 in 2011, all three criteria have been met, as long as it was your principle residence and homesteaded.

A couple of points.  Most electronic public records only go back five years, so you may have to dig through your old property tax statements to find the SEV in the year you bought the property.  Make your title company aware that you qualify for this exemption, and provide them with the documentation.

This applies only to the State Transfer Tax of $3.75 per $500 of sale price.  On the above $125,000 sale that amounts to $937.50 – not a bad exemption!  You will still have to pay the County Transfer Tax of $0.55 per $500 of sale price, or $137.50, but obviously you’re ahead of the game.

Don’t confuse what the law calls ‘true cash value’ (based upon the SEV) with your real ‘market value’.  Your Realtor determined the market value when he or she suggested the listing price.  Market value can be defined as what a ready, willing and able buyer will pay for a given property.  That could be more, or less, than what the State considers ‘true cash value’.  In fact it is almost always a different figure.

One final caution.  If you take this exemption and were not entitled to it by the criteria of the law, there is a 20% penalty of the tax assessed plus whatever tax is due.  So make sure you have the Title Company double check everything to verify that you are eligible to claim this exemption.

My special thanks to Sherry Hinsperger at Sterling Title in Brighton for the clear explanation of how this works.

Feel free to contact me if you are considering the sale of your home.  I’ll be happy to put my 13 years of experience to work for you! Get useful info like this by signing up for my monthly email newsletter right here.