Michigan House Bill 4753 Intends to Prevent Tax Increase on Family Real Estate Transfers
House Bill 4753 sponsored by Rep. Peter Pattalia has passed the Michigan house and has a decent chance of becoming law by the end of the year. As written, the bill would affect transfer of real estate between family members beginning on December 31, 2013. Currently in Michigan when a piece of real estate is transferred to a new owner (including family members), the taxable value generally “uncaps” to the true value of the property. Once you own a piece of real estate the taxable value cannot increase from one year to the next by more than 5% or the rate of inflation, whichever is less, until that real estate is transferred to a new owner. This piece of Legislation would significantly impact many families in the Leelanau County and Grand Traverse County area, especially those families who have had the same piece of real estate for 20+ years. Previously, if you planned on leaving real estate to a family member, the property tax “uncap” might not allow them to afford the new property tax, resulting in them being forced to sell that home/condo/acreage. Conversely, if the bill does pass, the negative impact will be on local governments and school districts which use property tax dollars to help fund their budget, especially in areas with a large amount of family waterfront cottages such as Leelanau County and Traverse City.
Here is a fictional example:
Suttons Bay waterfront vacation home that has been in the same family since 1972
Current Taxable Value = $125,000 (paying tax on a $250,000 true cash value)
Current Assessed Value = $200,000 ($400,000 true cash value)
-The current owners in this scenario pay non-homestead tax of = ~$4,869 per year.
-Property Transfers under old system “uncaps” the non-homestead tax to = ~$7,791 per year.
Under the MI Bill 4753 the new family member(s) would save almost $3,000 per year!
Keep in mind that a $400,000 waterfront house is the low of the market for many waterfront homes on West Grand Traverse Bay, Suttons Bay, Lake Leelanau, Glen Lake, and Lake Michigan. In some scenarios you could see a $10,000-$20,000 per year difference. Oltersdorf Realty, LLC will be keeping a close eye on this bill.
Michigan House Bill 4753 has been passed into law. I have an updated blog post on this topic that can be found here: /blog/2013/1/14/michigan-house-bill-4753-passed-prevents-property-tax-increa.html