Recent Law Allows for Waiver/Refund of State Real Estate Transfer Taxes for Sellers

Recent Law Allows for Waiver/Refund of State Real Estate Transfer Taxes for Sellers

I was recently discussing residential real estate issues with a colleague, Traverse City real estate broker Jack Lane (www.jacklane.realestateone.com), and he mentioned a recent law that has largely flown under the radar of many real estate professionals, attorneys and sellers of residential real estate. This law allows for certain sellers of residential real estate to get the state transfer tax waived or refunded. This relief, when available, can save a seller thousands of dollars.

In early July of 2015, the Michigan Supreme Court issued an expansive opinion that provides Michigan homeowners the right to claim an exemption from the state real estate transfer tax assessment of $7.50 for every thousand dollars in value that was sold. In order to claim the exemption, three conditions must be met at the time of sale: 

  1. The property must be claimed as seller's principal residence.
  2. The tax-assessed value of the property (or state equalized value "SEV") must be lower in the year of the sale than the year in which the property was purchased.
  3. The property was sold for a price in which a willing buyer and a willing seller would arrive through arm's length transactions.

According to the Michigan Department of Treasury Form 2796 (Application for State Real Estate Transfer Tax (SRETT) Refund), transfer tax refunds can be applied for up to 4 years and 15 days from the date of sale.

As a result, if you were a seller of your principal residence in the last four years, or you plan on selling in the future, you should compare your state equalized value of your residence the year you acquired it to the current SEV value to determine whether the current SEV is lower. If it is, you can then qualify for the exemption and avoid paying the transfer tax.

I am hoping this provides a little extra gift for some of you in this Christmas season. If you have any questions, please do not hesitate to follow up with me.