Michigan Court of Appeals Decision: Renting Your Primary Home

Michigan Court of Appeals Decision: Renting Your Primary Home

Can I rent out my primary home as a short term rental and still retain my principal residence exemption (PRE)?

In late 2017 there was a ruling by the Michigan Court of Appeals that could potentially impact many short term vacation property rental owners in Leelanau County. The petitioner was the owner of a vacation property in Boyne City who was denied their Principal Residence Exemption (PRE) by the Michigan Tax Tribunal because they rented out their primary home for more than 14 days during each year. The petitioner provided proof that he occupied the house for the majority of the year as the primary residence, was registered to vote at the address, and it was the address listed on his driver’s license and tax returns. He also stated that he had not claimed a principal residence in another state.  

In the appeal, RENTSCHLER v. TOWNSHIP OF MELROSE the Michigan Court of Appeals decision was the following:

“…For all these reasons, we conclude that the PRE guideline provision relied on by the Tribunal is erroneous and inconsistent with the GPTA. Renting one's home for more than 14 days does not disqualify a homeowner from the PRE. Accordingly, accepting the Tribunal's factual findings, we conclude that defendant has satisfied the legal requirements to qualify for the PRE. We therefore reverse the Tribunal's decision and remand for entry of a judgement granting petitioner's request for PRE for the 2013, 2014, and 2015 tax years. We do not retain jurisdiction.”

The Michigan Court of Appeals decision did not specify how many rental days is too many to qualify for the Principal Residence Exemption so it is likely there will be additional controversy and/or court cases dealing with this issue.

Here are a few helpful links dealing with this topic:

 http://caselaw.findlaw.com/mi-court-of-appeals/1881127.html

http://publicdocs.courts.mi.gov:81/OPINIONS/FINAL/COA/20171128_C336333_21_336333.OPN.PDF

http://www.fraserlawfirm.com/blog/2017/12/michigans-principal-residence-exemption-and-short-term-rentals/

https://www.wnj.com/Blogs/Appellate/December-2017/COA-A-Petitioner-is-entitled-to-a-Principal-Resid

Disclaimer: I am not an attorney. I recommend that you contact an experienced real estate attorney for further explanation on this Michigan Court of Appeals ruling and how it could potentially impact your real estate.

Jonathan Oltersdorf, Oltersdorf Realty, LLC
Phone: 231-271-7777
E-mail: jonathan@oltersdorf.com

The Tax Cuts and Jobs Act – How does it affect homeowners?

The Tax Cuts and Jobs Act – How does it affect homeowners?

Here are the major provisions that will affect current and prospective homeowners. All individual provisions are generally effective after December 31, 2017 for the 2018 tax filing year and expire on December 31, 2025 unless otherwise noted. The provisions do not affect tax filings for 2017 unless noted.

Deduction for State and Local Property Taxes

• The final bill allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation.
• The final bill also specifically precludes the deduction of 2018 state and local income taxes prepaid in 2017.

Mortgage Interest Deduction

• The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap. Neither limit is indexed for inflation.
• Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
• The final bill repeals the deduction for interest paid on home equity debt through 12/31/25. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
• Interest remains deductible on second homes, but subject to the $1 million / $750,000 limits.

Moving Expenses

• The final bill repeals moving expense deduction and exclusion, except for members of the Armed Forces.

Source: https://www.nar.realtor/taxes/tax-reform/the-tax-cuts-and-jobs-act-what-it-means-for-homeowners-and-real-estate-professionals?tp=i-H43-Bb-1Jq-1b4c2-1p-C5u1-1c-1Z75h-1DcSmD&om_rid=23612206%20&Om_ntype=NARstandard&om_mid=5074#!#Current%20and%20Prospective%20Homeowners Copyright National Association of REALTORS®. Reprinted with permission.

Michigan Abolishes Dower Rights

Michigan Abolishes Dower Rights

Prior to this year if a single man owned real estate in Michigan prior to his marriage his now wife was required to sign the deed on the sale of that real estate. On January 6, 2017 Michigan passed Public Act 490 of 2016 which eliminated dower rights in Michigan. The full legislation signed by the governor were Public Acts 378, 489, and 490 of 2016 which will be effective on April 7, 2017. Married persons of any sex will now be able to sell real estate without their spouse signing the deed to waive dower rights if the real estate is only in one name.

 In summary, the 3 bills contain the following:

-Senate Bill 558 (Sen. Jones) – Abolishes a wife’s dower right in both statute and at common law and repeals sections of the Revised Judicature Act that pertain to dower rights.

-House Bill 5520 (Rep. Kesto) – Deletes a provision that judgments of divorce and separate maintenance include a provision in lieu of dower.

-Senate Bill 0560 (Sen. Jones) – Applies the right of dower only to a surviving widow whose spouse died before the effective date of Senate Bill 558.

Michigan House Bill 4753 Passed - Prevents Property Tax Increase on Family Real Estate Transfers

Michigan House Bill 4753 Becomes Law

Public Act 497 of 2012
Prevents Tax Increase on Family Real Estate Transfers

House Bill 4753 sponsored by Rep. Peter Pattalia is a bill that became law on December 28, 2012. The law will affect the transfer of real estate between family members beginning on December 31, 2013. Previously in Michigan when residential real property is transferred to a new owner (including family members), the taxable value generally “uncaps” to the true market value of the property. Once you own residential 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 recently passed law will significantly impact many families in Leelanau County and Grand Traverse County (Traverse City), especially those families who have had the same property for 20+ years. Previously, if you planned on leaving residential real estate to a family member, the property tax “uncap” might not allow them to afford the new “market value” property tax, resulting in them being forced to immediately sell the family home.

Here is the exact language in the bill (page 4 of 5):

(s) Beginning December 31, 2013, a transfer of residential real property if the transferee is related to the transferor by blood or affinity to the first degree and the use of the residential real property does not change following the transfer. As used in this subdivision, “residential real property” means real property classified as residential real property under section 34c.

(e) Residential real property includes the following:
(i) Platted or unplatted parcels, with or without buildings, and condominium apartments located within or outside a village or city, which are used for, or probably will be used for, residential purposes.
(ii) Parcels that are used for, or probably will be used for, recreational purposes, such as lake lots and hunting lands, located in an area used predominantly for recreational purposes.

The one concern that I am sure will be a hot topic is that this law doesn’t discuss the role of trusts in the transfer of real estate. It does however for the first time allow for the transfer of residential real property to children and step-children without the “uncapping” of property taxes.

Here is a fictional example of could happen starting December 31, 2013:

Suttons Bay waterfront vacation home that has been in the same family since 1972

Current Taxable Value = $200,000 (paying tax on a $400,000 true cash value)
Current Assessed Value = $300,000 ($600,000 true cash value)

-The current owners in this scenario pay non-homestead tax of = ~$7,820 per year.
-Property Transfers under old system “uncaps” the non-homestead tax to = ~$11,730 per year.

Under the new law (Michigan House Bill 4753) the family member(s) will save about $3,550 per year!

Many of waterfront homes on West Grand Traverse Bay, Suttons Bay, Lake Leelanau, Glen Lake, and Lake Michigan could see a $10,000-$20,000 per year difference especially if it is a large “estate” size waterfront parcel that has been in the same family for a long time!

For Full Documents Click Here:   Bill As Passed By The House

                                                  House Introduced Bill

                                                  Final Public Act (the above bill that has become law)

                                                  Michigan Legislature Page: House Bill 4753

Jonathan Oltersdorf, Oltersdorf Realty, LLC
Phone: 231-271-7777
E-mail: jonathan@oltersdorf.com