Michigan Transfer Tax – Are You An Exempt Seller?

Here’s an excerpt:

“An exemption from the requirement imposed by the State Real Estate Transfer Tax Act, MCL 207.521 et seq, to pay state real estate transfer taxes upon the transfer or sale of real property may be claimed under MCL 207.526(t) if, on the date a parcel occupied as a principal residence is transferred, its state equalized value is less than or equal to its state equalized value on the date the owner purchased or acquired the parcel and the property is sold for not more than its true cash value at the time of sale.”

You can read the opinion letter for yourself by clicking here.

To summarize, a seller may be exempt from paying the state transfer tax if:

1. The property sold is their primary residence.
2. The sales price is less than twice the current SEV.
3. The SEV on the sale date is less than or equal to the SEV when the seller bought the property.

Here are three examples from the opinion:

EXAMPLE 1:

• SEV when acquired in 2006 = $74,000.00.
• SEV when transferred in 2008 = $72,000.00.
• TCV in 2008 = $144,000.00.
• Transfer or sale price in 2008 = $140,000.00.

OUTCOME: This transfer qualifies for exemption from the state real estate transfer tax because the SEV for 2008, the year of sale, is less than the SEV for 2006, the year of acquisition, and the sale price does not exceed the true cash value.

EXAMPLE 2:

• SEV when acquired in 2006 = $74,000.00.
• SEV when transferred in 2008 = $72,000.00.
• TCV in 2008 = $144,000.00.
• Transfer or sale price in 2008 = $148,000.00.

OUTCOME: This transfer is not exempt under MCL 207.526(t) because the sale price exceeds the true cash value for 2008, the year of sale.

EXAMPLE 3:

• SEV when acquired in 2006 = $74,000.
• SEV when sold in 2008 = $75,000.

OUTCOME: This transfer, regardless of the sale price, is not exempt under MCL 207.526(t) because the SEV for 2008, the year of sale, exceeds the SEV for 2006, the year of acquisition.

It’s important to note that this exemption does not cover the county transfer tax.

Also, it’s advised that a seller consult with an experienced real estate attorney.

It would be interesting if Realcomp (MLS service provider) could/would analyze 2009 sales for the tri-county area to determine the percentage of home sales that qualified for this exemption.  I’m sure a high percentage of short sales did.

I’m also sure those in Lansing running the budget numbers haven’t taken this potential loss of revenue into account.

The question is – how many real estate agents are letting their clients know about this?