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New Rule in Michigan for State Real Estate Transfer Tax

Michigan Real Estate Transfer Tax ExemptionUpdate: (March 12, 2016)

Now that the Michigan Department of Treasury has updated their refund application form and is no longer challenging this refund, our law firm will no longer be processing the initial application on behalf of clients. A copy of the new application form can be found here, and the information you will need can be obtained from your local assessor or country treasurer’s office.

Update: (February 1, 2016)

I have been receiving lots of questions from homeowners who built their house in the last four years. As of right now, the Michigan Department of Treasury is taking the position that you must look at the assessed value of your vacant property, not the value after your house was built, which disqualifies most new builds from receiving the refund. If the Department changes their position in the future, I will update this post.

Update: (December 15, 2015)

State of Michigan Governor Rick Snyder today signed into law legislation that makes permanent the conclusion of the Michigan Supreme Court’s decision discussed below. Most importantly, the new law makes the refund available retroactively to homeowner’s that sold a principal residence after June 24, 2011.

Original Post: (July 22, 2015)

Did you sell your Michigan principal residence in the last 4 years, and the tax assessed value at the time of sale was less than the year you bought the house? If so, you may be eligible for a significant tax refund from the State of Michigan.

Eligibility for SRETT Exemption

In early July of 2015, the Michigan Supreme Court issued an expansive opinion that provides many more Michigan homeowners the right to claim an exemption from the State Real Estate Transfer Tax Act assessment of $7.50 for every $1,000 in value that was sold. In order to claim the exemption, 3 conditions must be met at the time of sale:

  1. The property must be claimed as the seller’s principal residence.
  2. The tax assessed value of the property (or, state equalized value “SEV”) must be lower in the year of the sale than the year in which the property was purchased.
  3. The property was sold for a price in which a willing buyer and a willing seller would arrive through arm’s length transactions.

And according to the Michigan Department of Treasury Form 2796 (Application for State Real Estate Transfer Tax (SRETT) Refund), transfer tax refunds can be applied for up to four years and 15 days from the date of sale.

The SRETT can be a significant amount of money, and should not be ignored. For example, if the sales price of your house was $200,000, you could be eligible for a $1,500 refund.

Legal Background

While this exemption has been available in Michigan for a number of years, the Michigan Supreme Court opinion greatly expanded who is eligible for it. In 2008, a Michigan Attorney General opinion said that in order to be eligible for the exemption, the property must also be sold for less than 2 times the SEV value. (And a Michigan Court of Appeals decision from 2014 said that the property must be sold for exactly 2 times SEV.) The Supreme Court of Michigan has now overruled that additional condition, making the exemption available no matter what the sales price (so long as it was a legitimate arms-length transaction). Here are 2 examples to illustrate the change in policy:

Example #1:

SEV at time of purchase in 2006: $60,000

SEV at time of sale in 2015: $50,000

Sales price: $98,000

This transaction would have always been eligible for the exemption according to the 2008 Attorney General opinion, because the SEV at time of sale was lower than the SEV at time of purchase, and the sales price was less than 2xSEV at time of sale.

Example #2:

SEV at time of purchase in 2006: $60,000

SEV at time of sale in 2015: $50,000

Sales price: $110,000

This transaction would not have previously been eligible for the exemption because the sales price was greater than 2x the SEV in the year of sale. But the exemption is now available to sellers in arms-length transactions (note: sales at auction, or sales where the purchase price was reduced to avoid the tax, would still not be eligible).

Next Steps

If you are in the process of selling your home and believe you are eligible for the exemption, there is specific language that must be placed in the deed when you sell your property in order to avoid the state real estate transfer tax (you will still have to pay the county tax). If you are working with a real estate professional or title company to sell your property, please ask them about this important change in the law.

If you sold your house in the past 4 years and believe you are eligible for the exemption, the State of Michigan Department of Treasury has a process in place to apply for a refund. While we are no longer processing the initial application, if you believe the State of Michigan has improperly denied your application for a refund, please contact Attorney Adam Zuwerink at adam@westmichiganlaw.com or 231-457-4235.