Changes in ownership of real property may or may not affect your property taxes depending on whether a conveyance of real property is categorized as a “transfer of ownership.”
Whenever a “transfer of ownership” of real property occurs, the taxable value of the transferred property “uncaps” in the year following the transfer and is re-set based on the current market value. Generally speaking, an annual increase in a property’s taxable value is capped while it is owned by the same person. Michigan law, however, provides several exemptions to the definition of the term “transfer of ownership.” In particular, a new Michigan law allows owners to transfer property to certain relatives and certain trusts without uncapping the taxable value of the property. MCL 211.27a.
Public Act 310 of 2014, which went into effect on December 31, 2014, allows an owner of residential real estate to transfer his or her property to eligible family members without triggering an uncapping event. If residential real property is transferred directly, it can pass to the following list of eligible transferees without uncapping the property’s taxable value for purposes of property taxes:
- Parents (including parents of a spouse);
- Siblings (including siblings of a spouse);
- Children (including adopted children and children of a spouse); or
- Grandchildren (including grandchildren of a spouse).
For this exemption to apply, however, the use of the residential real property must not change. For instance, converting the property for commercial use would uncap the taxable value.
The new law also expands the methods by which an owner may transfer residential property to eligible family members. The transfer may occur either during the owner’s lifetime or after his or her death (by intestate succession or through a will or trust). This is a significant change because trusts and probate estates were previously subject to uncapping. As a result, parents can now maintain their residential real estate during their lifetimes and transfer it to their children upon their deaths without burdening the future generation with negative tax consequences.
The new exemptions provide more options for owners to transfer their residential real estate to family members without triggering an uncapping of property taxes. Property owners may want to explore taking advantage of the opportunities the new law makes available.
Please contact Attorney William L. Carey at Carey & Jaskowski, PLLC for all of your property tax questions and needs.