Real Estate Tip: Michigan Transfer Tax Exemption

Sales tax in Michigan is a day-to-day fact of life when in comes to most products, but how does it work when a house is bought or sold? Well, for one thing, the “sales” tax is known as transfer tax and operates under a different statutory scheme. Several entities charge a transfer tax on real estate transactions, including the state of Michigan and the county in which the property sits.

Generally speaking, the state transfer tax is $7.50 per $1,000 of the sales price. So if you sell your house for $200,000, you, the seller, would pay approximately $1,500 state transfer tax when the deed to the buyer is recorded.

Little Known Exemption

Hard to believe, but the declining housing market may give a seller one advantage in 2008. Because some home sellers will be selling their home for less than the amount at which they bought it, the seller may be exempt from the state’s transfer tax. There are, of course, several requirements for this exemption as set out in the Attorney General Opinion that defines it:

• The property must have been occupied as a principle residence, classified as homestead property;
• The property’s State Equalized Value (“SEV”) for the calendar year in which the transfer is made must be less than or equal to the property’s SEV for the calendar year in which the transferor acquired the property; and
• The property cannot be transferred for consideration exceeding its true cash value (twice the SEV) for the year of the transfer.

Tips:

• Don’t request the exemption unless you are sure you meet each of the above requirements. If you don’t qualify you will be assessed a 20% penalty.
  
  
• Think twice when negotiating sales price. It may be in your best interest to take a little less money for the property to keep the sales price equal to or less than the true cash value in order to save on transfer tax.
  
  
• If you already paid transfer tax on the sale of a property and think you would have qualified for the exemption, you may be able to get a refund from the Michigan Department of Treasury.
  
  
• County transfer tax is not affected.