Keeping it in the Family

Keeping it in the Family

Last year, we told you about Michigan’s new law that exempts home and cottage transfers between certain family members from property tax uncapping. The Michigan legislature has now expanded the law to accommodate many typical transfers so that they will no longer cause an uncapping of the property’s taxable value.

To provide some background, remember that in the year following a transfer of ownership, a property’s taxable value will be changed (usually increased, but not always) to equal the property’s state equalized value for the year following the transfer. This increase of the taxable value to equal the state equalized value is referred to in Michigan as “uncapping,” and this event can significantly increase property tax liability for the new owner of the property, especially if the property was held by the prior owner for a long time.

Beginning December 31, property that is transferred by will or trust to any of the following relatives is exempt from uncapping: mother, father, brother, sister, son, daughter, grandson, or granddaughter. However, the home cannot be used for any commercial purposes following the conveyance – it must remain residential property.

The expanded list of related individuals and the expanded definition of “transferor” that includes wills and trusts are welcome changes for property owners who want to pass cottages or other residential properties to family members without the additional burden of a substantial increase in property taxes.

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