A Property Tax Tug-Of-War

A Property Tax Tug-Of-War

Retaining a principal residence exemption (“PRE”) can sometimes be tricky. (The PRE exempts a homeowner’s principal residence from property taxes levied for school operating expenses.) Naturally, the tax assessor wants to collect every tax dollar it can. Conversely, a homeowner doesn’t want to pay any tax it doesn’t owe.

One recent back-and-forth battle involving a Michigan homeowner’s PRE came out in favor of the homeowner, Keith DeForge. It all began after the assessor completely rescinded Mr. DeForge’s PRE exemption upon learning that he rented out three rooms in his home as an Airbnb during the summer months.

Mr. DeForge appealed the PRE rescission to the Michigan Tax Tribunal, which ruled he was entitled to a PRE but reduced it to 70% because part of his home was used as a rental property. Not yet satisfied, Mr. DeForge appealed his case to the Michigan Court of Appeals. There, he achieved the complete restoration of his PRE. In explaining its reasoning, the Court stated: “While there may be a pecuniary interest for the property owner, it is not sufficiently different than providing a room to a boarder who pays rent to deem it a separate purpose.” (You can find the full text here.)

The Court of Appeals declined to say how many days a year a homeowner could rent out rooms and still be entitled to a PRE, but for now Mr. DeForge and all similarly situated homeowners have something to celebrate.

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