Transfer tax exemption...

From our Capital Title sister company comes this short piece about a possible tax break for sellers in Michigan.

With lower property values due to our struggling economy, many homeowners have been able to take advantage of an exemption contained in the Michigan Transfer Tax Act. If a seller meets the criteria, they would be exempt from paying the state transfer tax. Following are the criteria:

- The property must have been occupied as a principle residence – classified as homestead property.

- The property’s 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 seller acquired the
property.

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

For example:If the SEV of the homestead principle residence when acquired in 2005 is $100,000 and the current SEV on the property is $90,000, then the first two criteria have been met.

To establish the “true cash value” of the property, you must double the current SEV at the time of transfer. In this scenario, the true cash value would be $180,000. If the property sold for $170,000, then the 3rd criteria has been met of Exemption “u” as designated by the Michigan Transfer Tax Act.

Sellers who believe they may be eligible have up to 4 years from the transfer date to file for the exemption. It is also important to note that there are no similar exemptions in the County Real Estate Transfer Tax Act. The state transfer tax is the larger of the two taxes that are charged on a sale, equal to $7.50 for each $1,000 of the sale value; so, this can be a significant potential savings.

If you were a seller earlier in the year and didn't know about this exemption, you can still file a claim for it and get a refund of the transfer taxes that you paid on the sale, assuming that your sale meets all three criteria discussed above.

It is up to you as the seller to find out what the SEV was at the time that you bought the property, which you can do by calling the County Treasurer's office and having them look that up for you. They can also tell you what the SEV was this year at the time that you should, but you should already know that from this year's tax assessment notice.

You will be required to fill out an affidavit swearing that the information is correct when you file for the exemption; so, don’t try to “game the system” on this, because the penalty is fairly severe. The law reads - “If after an exemption is claimed under this subsection, the sale or transfer of property is found by the treasurer to be at a value other than the true cash value, then a penalty equal to 20% of the tax shall be assessed in addition to the tax due under this act to the seller or transferor."

Every little bit helps these days; so, put in your claim, if you sold or are selling and your sale meets the criteria. For a worksheet that you can fill out to to see if your sale qualifies, click here.