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Michigan Transfer Tax Act

Attorney General Mike Cox issued an important opinion this week clarifying the proper application of an obscure exemption contained in the Michigan Transfer Tax Act. The opinion, arising out of a request from Representative Martin Griffin (D-Jackson), should afford certain home sellers immediate financial relief as Michigan’s real estate market continues its road to recovery.

Exemption “t”, as designated in the Michigan Transfer Tax Act, sets forth that a seller may seek an exemption from paying the state transfer tax if the following criteria are met:

The property must have been occupied as a principle residence, classified as homestead property;

The property’s State Equalized Value (“SEV”) for the calendar year in which the transfer is made must be less than or equal to the property’s SEV for the calendar year in which the transferor acquired the property; and

The property cannot be transferred for consideration exceeding its true cash value for the year of the transfer.

With property values and corresponding SEV declining due to the struggling economy, home owners and real estate agents first took notice of the exemptions possible applicability under the State Transfer Tax. However, absent an official interpretation, there was little awareness of its proper application.

The opinion from the Attorney General uses examples to show how the application would apply. One example illustrating application provides:

If the SEV of the principle residence when acquired in 2006 is $74,000.00 and the SEV when transferred in 2008 is $72,000.00 then criteria one and two above are satisfied. You can establish the true cash value by doubling the SEV at the time of transfer. In this case the true cash value is $144,000. If the sale price in 2008 is $140,000.00 then the sale does not exceed its true cash value. All three criteria are satisfied and the exemption would apply.

The Attorney General’s opinion provides immediate relief to home sellers already faced with the reality of declining value on their single greatest asset.

Sellers should be cautioned that a request for the exemption that fails to meet all three criteria could bring a penalty equal to 20% of the tax assessed in addition to the tax due.

Additionally, no similar exemption exists in the County Real Estate Transfer Tax Act.

This is good information for Michigan homeowners that are in the process of selling and afford them some relief.

Posted by Missy Caulk-Ann Arbor- Realtor(R)- Ann Arbor Real Estate on 04/07/2008 07:26 PM

Comments (23)

michigan, property transfer tax

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23 Comments on Michigan Transfer Tax Act

APR

2008

Missy, very good information for Michigan selelrs! I love your new look. I book marked his post; although I have him saved to my blogs, and later on this evening I need to work on it. Or maybe tomorrow; its been a long day.

Hi Missy,

Wow, I like your new look!

Interesting that sellers may not have to pay your transfer tax if they're eligible for an exemption. BTW, how much is the tax? It's based on the sales price I assume?

We also have one here is CA, it's $1.10 per one thousand dollars, actually in truth it's .55 cents per $500.00, Therefore if you have a $300,000 sale it would be $330.00, what would that work out to in MI for the same sales price? Just curious...

APR

2008

It's about darned time! For the life of me I couldn't figure out why they wouldn't do this. Everyone (sellers and buyers) were penalized when a home reverted to a non-homestead status.

Oh wait. When it reverted the municipalities received more money for one year. Of course they wouldn't want this type of fairness to happen!

Missy, I think that Cox "issuing an opinion" is only suggesting this. It is not yet law, correct? I check back to see if you agree or if this is actually in place, which would be great.

Linda our's it 860.00 per 100 thousand dollars of sales price. Some is county and some is state. This redefining is only for the State, and I'm not sure how it is broken down, maybe someone else from MI will know. We only see the total on the HUD's and I can't remember, too early. I'll find out in the AM and report back.

Karen, this is in the law, but it needed clarifying, therefore it was clarified. Since mosts homes have always gone up in Mi and not down, this part of the law wasn't used until recently. It is Exemption t in the State Transfer Law.

Thanks Missy! I appreciate your information and follow up.

Missy, that's interesting, first I heard of this. What do the sellers need to do to apply for this if they meet the 3 requirements? Just tell the title company? or is it more complex?

APR

2008

Mike, I would let the title company know as well as the municipality

APR

2008

Missy

It breaks down like this, the county transfer tax is $1.10 per thousand of sale price. The state added $7.50 per thousand back in 1994 when Proposal A passed adding the homestead exemption.

APR

2008

Missy,

I have spoken to several brokers and local title companies this last week and only one Washtenaw Title Co. was aware of this. Several of the RE brokers were aware, but not certain yet how to approach their clients to discuss. We will have to see in this market pricing condition just how we see the title companies react and where th liability may lie in this.

Chris, if you hear let me know. My understanding is the law has been on the books for awhile just never really needed until now and that is why he clarified. Do you know anything more, please blog or comment on it.

Terry, thanks so much .

JUN

2008

Missy,

May 30, 2008 I just closed on my house. Do you know if I can still get this tax relief with the new MI transfer tax act? And what is SEV and how do I find it? Thanks,

Jill

Jill, it had to be filed by May 1st. SEV is the tax value your municipality put on the home. Somes times the SEV is higher than what you are paying taxes on. If you have owned a home for a long time, your SEV will usually be higher than your TV ( taxable value) or what you are paying taxes on.

JUN

2008

what happens if the first years SEV is based off the just the property?

I should clarify more. The home was a new construction. Unfortunatley the property will be sold for way less than has been put into the home. The first years SEV was based off of the property only. Also on that note what about people who have built additions and what not to the home since they purchased it?

this is great information. I wonder what we will have to do to make it work for the title companies?

Kelly, you have to appeal to the tax assessors office, with documentation on what you paid for the home vs what the current SEV is. Some townships are very open and others forget it.

The May 1st date is the date the State Legislature arbitraily set for filing these. If a homeowner built an addition then hopefully the homeowner pulled permits and it would be reassessed based on the improvement at that time. If they did not pull permits the township would not know about the addition.

If the home has not been assessed with just vacant land then it will go up when the sale is reported to the township or city.

NOV

DEC

Missy,

This is super info and very easy to understand. In reviewing all my tax records and closing statments extremly carefully, my sale which closed on 11/29/08, clearly met all three criteria.

Do you know how I should proceed in order to get a refund of the RETT that I paid at closing? It is a substantial amount and I certainly would not want to leave it on the table.

Thank you so much for your help and for your public service.

Sincerely,

Alden Knowles

Missy,

This is super info and very easy to understand. In reviewing all my tax records and closing statments extremly carefully, my sale which closed on 11/29/08, clearly met all three criteria.

Do you know how I should proceed in order to get a refund of the RETT that I paid at closing? It is a substantial amount and I certainly would not want to leave it on the table.

Thank you so much for your help and for your public service.

Sincerely,

Alden Knowles

Alden, send me a email and I can send you the form. You have to apply, not sure if you can get a refund but it is worth a try. Missy@MissyCaulk.com

DEC

Missy,

Thanks so much for getting back to me. Since contacting you I have actually made some significant progress. My real esate agent in Novi was able to provide me with the Application for refund form. I have filled it out and actually spoke directly to the key person in Lansing to make sure that I had understood it correctly and that I would be sending in the correct accompanying doccuments with my form.

He said I need the following:
Copy of Warrety Deed (tax stamped to prove the tax was paid)

Copy of HUD closing statements for both the buy and sell

Real estate tax bills for both years (purchase and sale) showing taxable value and SEV.

(Important to note that he stated that, while many times taxable value and SEV are the same, that the taxable value is what they use to determine if criteria are met).

So with these five documents and with meeting the three criteria that you highlighted, I am good to go. You have four years from date of close to apply.

I hope that this info can be as helpful to others as your original info was to me. I can't thank you enough.

Best wishes for the holidays.

Alden Knowles