Under Michigan law, the taxable value of property may not increase from one year to the next by more than 5%, or the increase in the consumer price index, whichever is lower. However, when there is a transfer of the ownership of the property, then the local tax assessor may "uncap" the property and tax it at 50% of its true value. This is often referred to as the "pop-up" tax because usually the taxes increase when the property is transferred.
During the last year, the Michigan Legislature has been revising the law to make more property transfers exempt from uncapping. The latest round of changes takes effect for transfers that occur after December 31, 2014. The following transfers will be exempt from a re-assessment:
- a transfer to a person's mother, father, brother, sister, son, daughter, adopted son, adopted daughter, grandson or granddaughter as long as the residential property is not used for any commercial purpose after the transfer.
- a transfer from a trust, as long as the property is transferred to the settlor, or the settlor's (or settlor's spouse's) mother, father, brother, sister, son, daughter, adopted son, adopted daughter, grandson, or granddaughter and the residential property is not used for any commercial purpose after the transfer.
If either of these situations apply, then it is important to complete all the transfer documents accurately so that the property is not re-assessed.