Concerned about losing your homestead exemption because you have been renting your home for more than 14 days per year? Fear not, as the Michigan Court of Appeals recently ruled in the taxpayer’s favor on this issue. Michigan’s Principal Residence (the “PRE”), also referred to as the Homestead Exemption, exempts “a principal residence…from the tax levied by a local school district for school operating purposes…if an owner of that principal residence claims an exemption as provided…” M.C.L.A. 211.7CC(1). An owner of such property may claim an exemption by filing an affidavit with the local tax collecting unit in which the property is located. A principal residence is defined in the statute as “the 1 place where an owner of the property has his or her true, fixed and principal home to which, whenever absent, he or she intends to return…” M.C.L.A. 211.7dd (c).
The Michigan Court of Appeals (“MCA”) recently overturned a Michigan Tax Tribunal (“MTT”) decision in which the Tribunal found “that petitioner was the owner of the property, that the property was residential, and that the petitioner had occupied the property for the majority” of the tax years in question. Rentschler v. Township of Melrose ___ Mich ___, ___ NW(20__) ___ Docket No. 336333 The MTT denied the PRE because the petitioner had rented out the residence for more than 14 days each year., relying on guidelines issues by the Michigan Department of Treasury for the PRE which states: “[I]f an owner rents his property for more than 14 days a year, the property is not entitled to a principal residence exemption.” The petitioner admitted that he had in fact rented the property for 14 or more days per year. The exact number of days the property was rented in each year is not referenced in the MCA decision.
The MCA reviewed the requirements for a PRE and noted that the statute “sets forth multiple scenarios disqualifying a property from receiving a PRE exemption, none of which applies to the petitioner in this case.” Further the Michigan PRE guidelines do not have the force of law. Various Michigan statutes provide that while a properly issued rule has force of law, guidelines do not. Accordingly, the MCA ruled “the PRE guideline provision relied on relied on by the Tribunal is erroneous and inconsistent with the GPTA (Michigan General Property Tax Act – added). Renting one’s home for more than 14 days does not disqualify a homeowner from the PRE.”
Given the widespread rental of homes in Michigan which qualify for the PRE, it is doubtful that this is the end of this controversy. Numerous Michigan homeowners utilize online service such as AirBnB and VRBO to facilitate the short-term rental of their homes, or bedrooms within their homes, as an added source of income. The MCA Opinion left open the question of how many rental days is too many, which will likely be determined by the legislature. For the time being, homeowners who have availed themselves of a PRE exemption are safe from losing it due to short-term rentals of their property.
Norbert T. Madison, Jr. is a highly regarded corporate and real estate attorney with more than three decades of experience. Primarily focused on real estate matters, Norb represents clients in all facets of the practice, including the purchase, sale, leasing, and financing of various types of real estate, as well as the development of industrial, office, retail, condominium and residential real estate. Contact Norb at 313.965.9026 or firstname.lastname@example.org.