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Michigan Real Estate Tax – New Transfer of Ownership Rules

Oct. 2014 Update – Michigan has passed a new law expanding the categories of persons who can take advantage of this uncapping exemption.

Michigan added a new real estate tax law beginning in 2014 that says a transfer of residential real property is not a transfer of ownership for purposes of real estate tax uncapping if the buyer and seller are related by blood or affinity to the first degree. The Michigan State Tax Commission has listed the following relationships as included in the new rule:

1. Spouse
2. Father or Mother
3. Father or Mother of the Spouse
4. Son or daughter
5. Adopted son or daughter
6. Son or daughter of the spouse
7. Siblings

This can be a powerful tool to pass property to future generations without ever uncapping the property’s taxable value. Two examples where this could be very beneficial are when parents know that one of their children will want to live in the parents’ house, or when family members want to change ownership of a cabin up north that has been in the family for decades.

While it seems like a great new law, there are still things to watch out for. The new uncapping exemption only applies to transfers between individuals, and the Michigan State Tax Commission has specifically said this does not apply to transfers from a trust or a probate estate. Also, if the seller still intends to live at the property, there may be homestead exemption issues and the property will be subject to the buyer’s creditors.

As with most new laws, there are still on-going discussions with possibles tweaks in the near future – such as not including sibling transfers, but allowing for probate transfers. Attorney Adam Zuwerink specializes in real estate and estate planning issues, and would be happy to answer any specific questions you have about transferring your property to family members. He can be reached at 231-457-4235 or adam@westmichiganlaw.com