In October, the governor signed Public Act 310 of 2014, which provides a number of new exemptions from the “uncapping” of a property’s taxable value upon transfer of ownership of the residential real property.
Under current Michigan law, whenever a transfer of ownership of real property occurs, the taxable value of the property uncaps in the following year and is re-set at fifty percent of the property’s true cash value (i.e. the state equalized value). There are, however, a number of exemptions to the definition of a “transfer of ownership.” These exemptions allow for certain transfers to occur without uncapping the taxable value of the property, which can be of great significance to those who hold highly appreciated real property.
Public Act 301 of 2014 has increased the list of exemptions available and will certainly benefit many, including those receiving residential real property as part of an inheritance.
Beginning December 31, 2014, certain transfers of residential real property to one’s mother, father, brother, sister, son (by blood or adoption), daughter (by blood or adoption), grandson, or granddaughter or to one’s spouse’s mother, father, brother, sister, son (by blood or adoption), daughter (by blood or adoption), grandson, or granddaughter (hereafter collectively referred to as “Immediate Relative” for purposes of this article) will not result in uncapping the taxable value of the property so long as the residential real property is not used for any commercial purpose following the conveyance. In addition to outright transfers, this list of new exemptions also includes:
- Conveyances to a trust if the property is conveyed by the settlor or the settlor’s spouse, or both, and the sole present beneficiary(ies) of the trust are the settlor’s or settlor’s spouse’s Immediate Relative(s), as defined above.
- Conveyances by distribution from a trust if the distributee is the settlor’s or settlor’s spouse’s Immediate Relative, as defined above.
- Conveyances by distribution under a will or by intestate succession if the distributee is the decedent’s or the decedent’s spouse’s Immediate Relative, as defined above.
- A change that adds or substitutes the settlor’s or settlor’s spouse’s Immediate Relative(s), as defined above, as sole present beneficiary(ies) of a trust holding residential real property.
The only drawback of Public Act 310 of 2014 is that in order to prevent uncapping, the residential real property may not be used for any commercial purpose following the conveyance. Therefore, transferees who receive residential real property such as apartments, rental properties, and vacation rental properties will not benefit from Public Act 310 of 2014; the taxable values of these types of properties will still uncap upon transfer of ownership. There is a small window of time in which to transfer these types of properties without the taxable value of the property uncapping, though. Until December 30, 2014, one may transfer residential real property to one’s spouse or to one’s mother, father, son, or daughter, including adopted children, or to one’s spouse’s mother, father, son, or daughter, including adopted children without the taxable value uncapping so long as the use of the residential real property does not change following the transfer.
If you have any questions or would like to discuss whether a certain transfer of ownership of residential real property will result in uncapping the taxable value of the property, please contact attorney Melisa M.W. Mysliwiec at mmysliwiec@fraserlawfirm.com or 616.301.0800. Melisa works out of Fraser Trebilcock’s Grand Rapids and Lansing offices, focusing her work in the areas of Elder Law and Medicaid planning, estate planning, and trust and estate administration. She was named a “Rising Star” in Michigan by Super Lawyers in 2013, and is an Accredited Attorney by the Department of Veterans Affairs.