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 ownership, then the local tax assessor may “uncap” the property and tax it at 50% of its true cash value. This is often referred to as the “pop-up” tax because USUALLY the property tax increases when the property is transferred.
The Good News
The Michigan Legislature recently amended the law to allow for a transfer of property between close relatives WITHOUT a “pop up” in the taxable value. Effective on December 31, 2013, a transfer of RESIDENTIAL property will not cause an uncapping if: The transferor and the transferee are related “in the first degree” (i.e., the transferee is the spouse, parent or child of the transferor); and the use of the residential real property does not change after the transfer.
Who Can Benefit
The Michigan Legislature believed that this new law would allow Michigan residents to retain and enjoy property that has been part of their families’ history without the risk of an unaffordable property tax bill. This might be especially true for elderly parents who have owned their home for many years, and the taxable value has not been adjusted to keep pace with the true cash value since 1994 (when the assessment cap was enacted). In that case, the threat of the pop up tax could force the family to sell the property to an outsider since a child might not be able to afford the higher property taxes.
The Fine Print
It is important to note that the new law applies to all residential property, not just a “homestead” which is a person’s principal residence. The law does not limit the number of parcels that can be transferred within a family or the number of times that the same parcel can be transferred among first degree relatives. As result, the new law could be an important tool for families who are planning to make gifts of real estate during their lifetimes or who are planning for the eventual transfer of their real estate after their deaths.