Good News From Lansing. These days it is hard to find good news in Lansing or Washington when it comes to taxes. However, in 2008 Public Acts 96 and 198, the Michigan legislature addressed the dilemma of homeowners who have put their houses up for sale and moved out.
Homestead Status. Michigan taxpayers are familiar with a Homestead exemption for their principal residence, which usually is worth a savings of 18 mils on their property tax bills - approximately half of the total potential tax burden for most taxpayers. We deal regularly with questions from clients about Homestead status, who can claim it and how. Most homeowners are familiar with the Homestead Affidavit, filed with the local assessor, to establish the Homestead exemption - sometimes called the Principal Residence Exemption (PRE).
Homestead Rescission. Michigan law requires that a property owner is required to rescind the PRE within 90 days after the property is no longer used as a principal residence, i.e when the owner moves out. Homestead status is determined on a calendar year basis. Normally, the PRE will be in effect for the taxable year in which the property is transferred or is no longer the principal residence. So, if a person moves out and/or rescinds the PRE during 2008, for example, the PRE status is generally maintained for the 2008 tax year. Prior to the 2008 amendments, an owner moving out of a home listed for sale in 2008 would lose the homestead exemption for the tax year 2009. If the owner failed to file the Notice of Rescission, continuing the exemption for 2009, the owner could be liable for penalties. For example, clients moving to a smaller residence or moving out of state in 2008 could be on the hook for a much large tax bill in 2009 and subsequent years until the property sells. (If a person moved out of their home in 2007, the PRE would be lost for 2008.)
Conditional Rescission. The 2008 statutory amendments to MCL 211.7cc.(5) are now permitted to file a Conditional Rescission Notice affirming that PRE property is not occupied, is for sale, is not leased and is not used for a business or commercial purpose. A new Department of Treasury form 4640 has been issued for this purpose. The statute requires it to be filed annually prior to December 31 in order to maintain the PRE for the next tax year. The statutory amendments states that an owner may retain an exemption "for not more than 3 tax years on property previously exempt ...".
While it is not completely clear how the 3 tax years are determined, it would appear that a homeowner moving out in 2008 and filing a conditional rescission prior to December 31, 2008, would be able to keep the PRE in effect for tax years, 2009, 2010 and 2011, if the property is unoccupied, listed for sale, and not leased during that period of time. (Let’s hope that the property owner in question has priced the property at a reasonable enough level to sell within that period of time.) Similarly, an owner who moved out in 2007 can get retroactive relief for 2008 under the new law, but the owner needs to act promptly.
Conclusion. The conditional rescission and continuation of the homestead exemption is a great tax break for the many Michigan residents who have been forced to move as a result of a lay-off or transfer. It also benefits retired property owners who have moved and have their residences listed for sale. It can be especially beneficial if the client has moved within the State of Michigan and can now claim two properties for the PRE, pending the sale of a previous homestead property. The new law has a critical time element for owners seeking relief for 2008. Relief should be sought before the December Board of Review meeting.
If you have questions pertaining to the PRE, estate planning or your property tax classifications or valuations, please call Jim Modrall or any of the attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
