Investors are frequently looking for creative ways to avoid the transfer tax that comes with the sale of real estate. One recent “trick” has been to create a limited liablity company (LLC) which owns the real estate. This allows the investor to simply sell the LLC, instead of the real estate, to the new buyer, thus avoiding the transfer tax.

Unfortunately for investors, the state of Michigan already thought of this “trick”. On January 9, 2009, a new Michigan tax law regarding real estate sales took effect and was RETROACTIVE to January 1, 2007. This law attempts to close the very loophole that made it possible for certain transfers of real estate to escape tax.

This law states that a seller owes the transfer tax if:

  1. 90% or more of the value of the LLC is from the real estate; and
  2. the seller transfers more than 80% of the ownership of the company.

If both of these requirements are met, then the seller of the real estate is responsible for paying the tax to the county treasurer within 15 days after the sale.

If you are considering a real estate transaction that may have tax consequences, it is best to consult a legal professional.

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