Can “U” help you?

In Michigan and many other states the sale of a property provides an opportunity for the tax man to

get in on the action with what is called a Transfer Tax. The tax is levied on most sales and is split between the state and the counties. It is made up of two deceptively named components – the State Revenue Stamp and the State Tax Stamp.  It’s sort of like a sales tax on the transaction and in Michigan amounts to a total of $8.60 per $1,000 of value of the sale. In Michigan it is customary that the Transfer Taxes are paid by the seller of the property; however, if the property is bank owned the banks lately have been requiring the buyer to pay those taxes.

There are also exceptions in the law that established these taxes (when are there ever not exceptions?), one of which was recently “clarified” by Michigan lawmakers. Exemption “U” provides that the seller is exempt from the Transfer Taxes if the SEV value of the property at the time of the sale is lower than the SEV value when the seller bought the property, i.e. it is still underwater, with negative equity, from the recent Great Recession.

While many areas in Michigan have recovered nicely the value that was lost in the Great Recession, not all area have shared equally in the comeback.  Many properties (mostly residential homes) that were purchased at the peak of the “real estate bubble” that led to the Great Recession are still way below those values. In most cases the SEV values of those homes rose along with the bubble prices (although not as fast due to restrictions on how fast SEV’s could be raised by local assessors) and reached heights that are well above where we are today. Many severely depressed areas, like Detroit and some surrounding, older suburbs saw value drops exceeding 50% during the Great Recession, after having seen run-ups in value that just didn’t make sense in retrospect.

So, now people who bought during the peak years are trying to sell and are usually taking a loss. In addition, the SEV values were brought down relatively rapidly to reflect the market values losses of

the recession. Most of those people now qualify for the Exception “U” relief from paying Transfer Taxes on the sale of their homes. Many who sold within the last 4 years and actually paid those taxes may also be due a refund of the taxes that they paid. The recent Legislative action clarified when and how properties qualified for the exemption from those taxes under Exception “U”.  There is a good article explaining how you can determine if you are eligible for a refund of those taxes at the Alger Law Office web site –

http://www.agerlawoffice.com/real-estate/2015/09/29/are-you-entitled-to-a-state-real-estate-transfer-tax-srett-refund-updated/

If you seem to be eligible, you can download the form to request the refund here –

https://www.michigan.gov/documents/2796f7_2601_7.pdf

So, the bottom line is that you may still take a loss on a property that was just way overpriced during the heat of the real estate bubble; but, you don’t have to add insult to injury by being taxed by the state on that transaction. And if you did sell within the last four years, you may be able to get a refund. So “U” can help you. 

I hope this post helped you, too.