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Located in the State of Michigans 2021 Taxpayer guide is 5 Michigan Tax Exemptions You Didn’t Know About!

Lets begin…

PRINCIPAL RESIDENCE EXEMPTION: A principal residence is exempt from taxes levied by a local school district for operating purposes of up to 18 mills. A homeowner’s principal residence is defined as “the one place where an owner of the property has his or her true, fixed, and permanent home to which, whenever absent, he or she intends to return and that shall continue as a principal residence until another principal residence is established.” Property owners may claim only one exemption. A married couple, filing income tax returns jointly, are generally entitled to no more than one principal residence exemption. However, there are exceptions to these rules. The law allows a temporary, additional exemption for up to three years on an unoccupied homestead listed for sale. Homeowners with a principal residence exemption currently residing in a nursing home, assisted living facility, or other location while convalescing and members of the armed services absent on active duty may maintain the exemption so long as they continue to own and maintain the property, they do not establish a new primary residence, and the property is not used for most commercial and business purposes. A homeowner who vacates their home because of damage or destruction may maintain the exemption for up to three years as long as they demonstrate an intent to move back in. To be eligible for the homeowner’s principal residence property exemption, a taxpayer must file an affidavit with the local tax collecting unit on or before June 1 for an exemption from the immediately succeeding summer tax levy and November 1 for an exemption from the immediately succeeding winter tax levy. Once filed, exemptions are valid in future years until rescinded. A denial of this exemption may be appealed to the Michigan Tax Tribunal. The appeal must be filed within 35 days from date of notice.

FARMLAND (QUALIFIED AGRICULTURAL) PROPERTY EXEMPTION: Farmland may be exempt from taxes levied by a local school district for operating purposes of up to 18 mills. Farmland must be determined to be qualified agricultural property. The state has defined qualified agricultural property as “unoccupied property and related buildings classified as agricultural, or other unoccupied property and related buildings located on that property devoted primarily to agricultural use.” If a property is classified as agricultural for assessment purposes, a property owner does not need to take any action to receive the exemption, unless requested by the local assessor. Otherwise, a property owner must claim an exemption by filing an affidavit with the local tax collecting unit on or before May 1. In some cases, a partial exemption may be approved if part of the property is used for non-agricultural purposes. An exemption remains in place unless withdrawn or until rescinded. A denial of an exemption may be appealed to the local board of review. A board of review decision may be appealed to the Michigan Tax Tribunal within 35 days from the decision.

POVERTY EXEMPTION: A person may be eligible to request a poverty exemption from property taxes if they, at a minimum, own and occupy the property as their homestead, demonstrate evidence of ownership and identification, and meet poverty income standards. The local board of review makes the determination if the exemption should be granted or denied based on the guidelines for both income and asset levels adopted by the local unit of government. To be eligible for an exemption, a homeowner must apply to the local assessing unit after January 1 but before the day prior to the last day of the board of review. In certain jurisdictions, where permitted by resolution of the local governmental unit, a person who received the exemption in 2019, 2020, or both, or was approved for the first time in 2021, and receives a fixed income from public assistance may receive the exemption for up to 3 additional years without reapplication. March board of review denials may be appealed to the Michigan Tax Tribunal by the end of July. July and December board of review denials must be appealed to the Michigan Tax Tribunal within 35 days of notice.

DISABLED VETERANS EXEMPTION: Property owned and used as a homestead by a disabled and honorably discharged veteran is exempt from Michigan property taxes. To be eligible for this exemption, a disabled veteran must be determined by the U.S. Department of Veterans Affairs to be permanently or totally disabled as a result of military service and entitled to veterans’ benefits at the 100% rate, have a certificate from the U.S. Veterans Administration certifying that they are receiving or have received pecuniary assistance due to disability for special adaptive housing, or be rated by the U.S Department of Veterans Affairs as individually unemployable. This exemption is also available to an unremarried surviving spouse of a disabled veteran. An affidavit to qualify for this exemption must be filed annually with the local tax unit. A claim for the exemption is reviewed by the local board of review. A board of review decision may be appealed to the Michigan Tax Tribunal.

FARMLAND DEVELOPMENT RIGHTS AGREEMENT OR EASEMENT EXEMPTION: Property owners who own farmland covered by a development rights agreement or easement with the state are exempt from special assessments for sanitary sewers, water, lights, and nonfarm drainage on land covered by the agreement or easement. The exemption does not apply to assessments in place prior to entering into an agreement or easement. In addition, the property owner cannot take advantage of the services financed through the assessment on the exempted land and may be required to pay the assessment if the agreement or easement is ended.

As always, If you have any tax questions, please never hesitate to contact us!

Michigan Tax Exemptions You Didn’t Know About – 2021

Listed below is some useful Tax Information for Michigan Students:

American Opportunity Credit

• Maximum Credit: Up to $2,500 per eligible student annually
• Limit on modified adjusted gross income: $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er)
• Refundable or nonrefundable: 40 percent of credit may be refundable; the rest is nonrefundable
• Number of years of postsecondary education: Available only for the first four years of postsecondary education
• Number of tax years credit available: Available only for four tax years per eligible student, including any year(s) Hope credit was claimed
• Type of degree required: Undergraduate or graduate degree
• Number of courses: Student must be enrolled at least half time for at least one academic period that begins during the year
• Felony drug conviction: No felony drug convictions on student’s records
• Qualified expenses: Tuition and fees required for enrollment; course-related books, supplies, and equipment do not need to be purchased from the institution in order to qualify

Lifetime Learning Credit

• Maximum Credit: Up to $2,000 credit per return
• Limit on modified adjusted gross income: $160,000 if married jointly; $80,000 if single, head of household, or qualifying widow(er)
• Refundable or nonrefundable: Nonrefundable—credit limited to the amount of tax you must pay on your taxable income
• Number of years of post-secondary education: Available for all years of post-secondary education and for courses to acquire or improve job skills
• Number of tax years credit available: Available for an unlimited number of years
• Type of degree required: Undergraduate or graduate degree or non-degree courses to acquire or improve job skills
• Felony drug conviction: Felony drug convictions are permitted
• Qualified expenses: Tuition and fees required for enrollment, including amounts required to be paid to the institution for course-related books, supplies, and equipment

Student Loan Interest Deduction

• Maximum benefit: You can reduce your income subject to tax by up to $2,500
• Loan qualifications: Your student loan must have been taken out solely to pay qualified education expenses and cannot be from a related person or made under a qualified employer plan.
• Student Qualifications: The student must be a taxpayer, taxpayer’s spouse, or taxpayer’s dependent and enrolled at least half-time in a degree program.
• Time limit on deduction: You can deduct interest paid during the remaining period of your student loan.
• Limit on modified adjusted gross income: $175,000 if married filing a joint return; $85,000 if single, head of household, or qualifying widow(er)

Coverdell Education Savings Account

A Coverdell ESA is set up to pay the qualified education expenses of a designated beneficiary.

Where can it be established?

It can be opened in the United States at any bank or other IRS-approved entity that covers Coverdell ESAs.

Who can have a Coverdell ESA?

Any beneficiary who is under the age 18 or is a special needs beneficiary.

Who can contribute to this ESA?

Generally, any individual (including a beneficiary) whose modified adjusted gross income for the year is less than the IRS limits.

Are distributions tax free?

Yes, if the distributions are not more than the beneficiary’s adjusted qualified education expenses for the year.

Education Savings Bonds

You may be able to cash in qualified US savings bonds without having to include in your income some or all of the interest earned on the bonds, if you meet the following conditions:

• you pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return;
• your modified adjusted gross income is less than the IRS limits; and
• your filing status is not married filing separately.

Scholarships and Fellowships

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate.

A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.

Scholarships and Fellowships are tax free only if

• the student is a candidate for a degree at an eligible educational institution; and
• the aid is used to pay for qualified education expenses:
  • tuition and fees required to enroll or attend an eligible educational institution, or
  • course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Expenses don’t include room and board, travel, research, clerical help, or equipment and other expenses that are not required for enrollment or attendance.

Qualified Tuition Program (QTP)

• Qualified tuition programs are also called “529 plans.”
• States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student’s qualified education expenses at a postsecondary institution. Eligible educational institutions may establish and maintain programs that allow you to prepay a student’s qualified education expenses. If you prepay tuition, the student will be entitled to a waiver or a payment of qualified education expenses. You cannot deduct either payments or contributions to a QTP. For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it.
• The tax benefit of a QTP is that no tax is due on a distribution for a QTP unless the amount distributed is greater than qualified educational expenses.

Business Deduction for Work-Related Education

• If you are an employee and can itemize deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2 percent of your adjusted gross income.
• If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This reduces the amount of your income subject to both tax and self-employment tax.
• Your work-related education expenses may also qualify you for other tax benefits, such as the tuition and fees deduction and the American Opportunity and Lifetime Learning credits. You may qualify for these benefits even if you do not meet the requirements listed above.

Qualifying Work-Related Education

You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests:

• The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.
• The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it is

• needed to meet the minimum educational requirements of your present trade or business, or
• part of a program or study that will qualify you for a new trade or business.

If you have any questions please contact us today!

Those were our 9 Tax Tips for Small Businesses in Michigan! Hope you enjoyed.

If you have any questions regarding any of these tax tips, please reach out to ATS Advisors and talk with us today!

5 Michigan Tax Tips for Michigan Homebuyers: Home buyers and home sellers may not want to think about real estate transaction taxes, but they are inevitable. You may be liable for any number of federal, state or local taxes upon a sale’s completion. Here’s what you need to know about Michigan real estate taxes.

They are the last thing any home seller or buyer wants to think about in a real estate transaction. What are its tax implications, how much are they, and who pays?

How much you have to pay and if you have to a particular real estate tax at all depends on a number of factors. When it comes to one particular tax, the buyer and seller can even negotiate who pays it.

Having the right guidance to get you through the tax maze can save your tens-of-thousands of dollars. Whether you’re buying or selling, you will want to work with a professional realtor who knows the ins and outs of real estate taxes.

Here’s 5 Michigan Tax Tips for Michigan Homebuyers to get you started and if you have any other questions CONTACT ATS ADVISORS today!

1. Will You Have to Pay Taxes When You Sell Your Home in Michigan?

If you’re a typical home seller in Michigan, you do not need to report your capital gain to the IRS after the sale. However, this does not apply to everyone. If you file as a single person and you sell your home for a capital gain of more than $250,000 (more than $500,000 if you file a joint return), you may have to pay a capital gain on money you earn in excess of the $250,000 limit.

Anyone who has lived in a home as their primary residence for at least two years (of the previous five) before the sale does not have to pay a capital gain below $250,000.

Here’s how to calculate your capital gain. Take the price that you paid for the purchase price and subtract it from the final sale. So, if you bought a home for $300,000 three years ago, lived in it during that time, and then sold it for $600,000, your capital gain would be $50,000.

That’s the money you may owe taxes on. But this amount can be reduced. If you made $60,000 worth of repairs and home improvements to the property, you can deduct this from the capital gain. To do this, just add $60,000 to $300,000 to the amount of the home’s purchase price.

Now, your net gain on the property is just $240,000, which is below the capital gain limit for a single person. The IRS guide on capital gains from home purchases notes that there are sellers who may want to report their capital gain as a taxable gain even though some or all of it is eligible for exclusion.

Sellers who may want to do this include homeowners who plan to sell another home within the next two years (and expect to receive a bigger gain from the sale of that other property). Because tax laws are quite complicated in Michigan, all home sellers should seek professional guidance.

A local real estate agent will be able to help you determine what your tax liabilities may be. They buy and sell homes everyday and they understand local, state, and federal real estate laws. They are highly knowledgeable and will be able to suggest ways that you can reduce your tax burden on the home sale.

2. How Much Are Real Estate Transfer Taxes in Michigan (and Who Pays Them)?

Real estate transfer taxes can be complicated because several jurisdictions may be responsible for them. They can be imposed by states, counties, or municipal authorities. A real estate transfer tax is typically charged on the transfer of legal deeds, titles to a property, or certificates that are transferred when a buyer formally agrees to the purchase.

These are what are known as ad valorem taxes. An ad valorem tax is based on the assessed value of the item being sold, in this case the home. So, the tax is based on the property value and it is usually the responsibility of the seller.

It’s important to note that a home purchase is a negotiation and that there are no firm rules. A home seller and home buyer can negotiate who pays the transfer tax in most states. So, the tax (and many other parts of a home sale) is negotiable, at least when it comes to who pays for it. It is not unusual for a seller and buyer to come to an agreement where they split the cost of the tax.

Unfortunately, Michigan is not one of the five states (Mississippi, New Mexico, Missouri, Wyoming, and North Dakota) without the transfer tax, which can be hefty. The state transfer tax rate is $3.75 for every $500 of value transferred. There is also a county transfer tax rate in Michigan. It’s $0.55 for every $500 of value transferred. (In some counties the tax rate can be up to $0.75/$1000 of value transferred.)

There are transfer tax exemptions, and a professional realtor will be able to help you take full advantage of them. Exemptions apply in some sales to family members and to the financing of some property sales. Your Clever Partner Agent will be able to guide you through any deductibles you may be entitled to or connect you to a professional tax advisor so that you do not pay more than you have to after the sale.

3. How to Calculate Property Taxes in Michigan

Property taxes are another ad valorem tax. In other words, they are assessed on the value of your property. They can vary greatly from state-to-state, city-to-city, and even neighborhood-to-neighborhood.

The reason for major differences on what you pay in property taxes is due to the fact that they pay for services in the community where the property is located. For example, they may be used for community centers, school funding, roads, etc.

The quality of these services is often dependent on the amount of money a particular neighborhood takes in from property taxes. The more the community collects in property tax revenue, the more they can spend on services for those taxpayers.

As noted above, property taxes are calculated based on the value of your property. This can be done through several methods. In what’s termed a “sales comparison,” the assessor will calculate the value of your home based on other similar properties that have recently sold in the neighborhood. The criteria they use can include the state of the property, the overall market conditions in the area, and the costs of any improvements that are made on the property and any structures on it.

An assessor may also use the “cost method.” In this method, the assessor determines how much it would cost to rebuild your home from scratch. If this method is used, the cost of depreciation is factored into the assessment. Lastly, an assessor can also use what’s called the “income method.” This is used primarily in commercial and business property transactions.

Unfortunately for Michigan homeowners, the state has one of the highest property tax rates in the U.S. Its average tax rate is 1.83%. In Saint Clair County, it’s slightly less at 1.6%. At that rate, a homeowner with a property worth $250,000 would pay $4,080 in taxes a year.

That’s more than $1,000 more than the national average. Across the state, Michigan homeowners with properties worth $250,000 pay almost $1,600 more each year than the national average.

It’s something that home buyers need to factor into their budgets. Various municipalities in Michigan set their own dates for when they are due. So, it’s important that you save an appropriate amount each month, although you may only have to pay them quarterly or less infrequently.

4. Tax Breaks for Michigan Home Buyers & Sellers

Michigan home buyers and sellers have a variety of federal and state tax deductions available to them. A Clever Partner Agent can answer any questions that you may have or guide you to a tax professional, potentially saving you thousands of dollars a year. Here are some key deductions that are available.

The Mortgage Interest Deduction

This allows home buyers to deduct the interest from mortgages up to $750,000. These tax credits also allow the lender the option to include the estimated tax credit when calculating the debt-to-income ratio, so it can help make homeownership easier.

Property Taxes

Property taxes are deductible on your 1040 Form (up to $10,000). But be careful to read the fine print (or ask a tax professional) when it comes to the requirements.

Tax breaks for home sellers include:

Costs of Home Improvement Repairs and Improvements

Any home improvements or repairs to a property can be tax deductible. So, it’s important to keep all of your receipts. And remember, there are time limits. The repairs and improvements typically have to made within 90 days of the closing date.

Selling Costs

Home sellers can also reduce their income tax by the amount of their selling costs. These may be costs associated with title insurance, broker’s commissions, inspection fees, and any repairs made to the property.

5. The Next Step

Whether you’re buying a home or selling one, there are tax implications to the sale of property. You need to be fully aware of your responsibilities and tax liabilities. That’s why it’s essential that you speak to a Clever Partner Agent.

They can help you determine what all of the costs of selling a home will entail. If you’re a home buyer, they’ll help you work through a complete budget that can get you into your own home, sometimes even for the same amount you may be paying for rent.

They can also point you to professional tax advisors who can let you know about the variety of tax programs, credits, and other benefits you may be entitled to. These can save buyers and sellers thousands of dollars.