Archive for the Michigan Taxes Category

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.

The state of Michigan has all information regarding the Authorized Representative Declaration (Power of Attorney Form) on their website at: www.Michigan.gov/taxes

Read more below:

MCL 205.28(1)(f) strictly prohibits employees of the Department of Treasury from disclosing confidential tax information to anyone other than the individual taxpayer or his or her authorized representative.

Authorized Representative Declaration (Power of Attorney) Form 151

Help Resources

Below are frequently asked questions to assist you in filling out the form, examples of what a completed form might look like as well as a new video explaining how to fill out the new form.

Frequently Asked Questions
Authorized Representative Declaration Video
Form 151 Business Example
Form 151 (Part 5, Section 8) Example
Form 151 Individual Income Tax Example

 

Request Copies of Tax Returns

Complete a 4095 Request for Disclosure of Tax Return and Tax Return Information to authorize the Department of Treasury, Office of Disclosure to provide copies of tax returns to yourself or your appointee. The Disclosure officer will complete the form along with the requested tax return information and return it to you or your appointee.

4095, Request and Consent for Disclosure of Tax Return and Tax Return Information

Authorize a Representative

If you wish to authorize another person or corporation, (tax preparer, family member, etc.,) as your representative in tax or debt matters before the State of Michigan, complete and file a form 151, Authorized Representative Declaration

151, Authorized Representative Declaration (Power of Attorney)

Request Information for Mortgage Companies

For specific use by Mortgage Companies and Financial Institutions in dealing with mortgages. You may complete and file a Limited Power of Attorney – Borrower’s Authorization for Disclosure of Information (form 4300) if you wish to have your mortgage company or financial institution contact the Michigan Department of Treasury on your behalf to obtain any and all information, including pay off amounts, for settlement of any outstanding tax lien(s) or debt obligations.

4300, Limited Power of Attorney – Borrower’s Authorization for Disclosure of Information

Written Authorization

205.8 Letters and notices sent to taxpayer’s official representative.

If a taxpayer files with the department a written request that copies of letters and notices regarding a dispute with that taxpayer be sent to the taxpayer’s official representative, the department shall send the official representative, at the address designated by the taxpayer in the written request, a copy of each letter or notice sent to the taxpayer. A taxpayer shall not designate more than 1 official representative under this section for a single dispute.

Disclosure Unit Information

Mar-14-2021 – Michigan.gov/taxes

Listed below is the Michigan Homestead Property Tax Credit Claim Information for the tax year of 2021.

Prior to sending additional information for review, verify the following information:

• Was all taxable and nontaxable income included in total household resources?
  • Yes, continue to next topic.
  • No, recalculate your homestead property tax credit using the correct amount of income. If you still disagree with the adjustments made, submit documentation to verify your income and property tax statements for the year in question, to Michigan Department of Treasury for review. Be sure to include a daytime phone number.

See the chart below to determine if some income was omitted on the original return and what information to send for documenting all sources of income.
Income includes, but is not limited to, the following:

Income Type	Supporting Documentation
Wages, salaries, tips, etc.	W-2(s) and/Of 1099(s)
Business Income (from Federal Schedule C, C-EZ, E or F)	Business records used to prepare your return and/or 1099 payment document
Interest and/or dividends	1099-INT, 1099-DIV, etc.
Capital Gains	U.S. Schedule D
Social Security, Supplemental Security Income(SSI) and/ or Retirement, Survivors, and Disability Insurance (RSDI) payments	Statement from the Social Security Administration indicating amounts for yourself, your spouse and any claimed dependents.
Pension benefits (including nontaxable pensions)	1099-R
Railroad retirement benefits	1099-R
Veteran’s benefits	Letter from the regional Veteran’s affairs office
Worker’s compensation	1099-R and/or W-2
Child Support	Statement showing amount of support received for the year
Foster Care payments	W -2. 1099. or other Statement from MDHHS
Adoption subsidy payments	Annual statement
Cancellation of Debt Income (CODI)	1099-A and/Of 1099-C
Nontaxable gain from sale of primary residence	See IRS Publication 523
Student grants/ scholarships	1098-T
FIP/MDHHS payments (Do not include food assistance)	Annual statement
Rent/Bills paid on your behalf	Statement from each person who gave assistance; include the total dollar amount given for the year, name, signature, date & contact information
Gifts of cash over $300	Statement from each person who gave assistance; include the total dollar amount given for the year, name, signature, date & contact information
Personal Loans – Including loans from relatives and/or friends*	Signed statement showing the original amount of the loan and the terms of repayment.
Inheritance or proceeds of life insurance policy from decedent other than spouse	Statement showing amount received for the year
Inheritance or proceeds of life insurance policy from deceased spouse*	Statement showing amount received for the year
Food Assistance*	Statement showing amount of assistance received for the year
Credit card and/or savings account*	Statements from financial institution(s) indicating dates and amounts of disbursements received for the year. Statements should be from the beginning, middle and end of the year.
Student Loans*	Statement from financial institution/lender indicating dates and amounts of disbursements.

*Note: This is not included as income, but can be used to show how living expenses were covered.

• If you live in a village you may receive a separate property tax statement from the village itself in addition to summer and winter tax statements. Village taxes may be included on the homestead property tax credit.

• Verify the correct statements were used

Use summer and winter property tax statements for the tax year in question no matter when the taxes were paid. (example: for the 2020 tax year use the 2020 summer and the 2020 winter property tax statements)

• If Correct statements were used continue to next topic.
• If Incorrect statements were used re-calculate the MI-1040CR using the correct summer and winter property tax statements and corresponding amounts. If you still disagree with the corrections made, submit your summer and winter property tax statements for the year in question to Michigan Department of Treasury for review. Be sure to include a daytime phone number.

• Verify the correct school district code was reported. (Line 4)

School District Code: If you are unsure of what your school district code is, please contact your county, city, township or village office. A list of school district codes can be found in the MI-1040 Instruction Booklet.

• If Correct school district was reported continue to next topic.
• If Incorrect school district was reported, submit your summer and winter property tax statements for the year in question to Michigan Department of Treasury for review. Be sure to include a daytime phone number.

• Verify the correct taxable value of your homestead was reported if you did NOT buy/sell your home. (Line 9)

Taxable Value: This can be found on your property tax statements sent to you by your county, city, township or village office. Do not use the State Equalized Value (SEV) or Assessed Value.

• If Correct taxable value was reported, continue to next topic.
• If Incorrect taxable value was reported, recalculate your property tax credit using the summer and winter property tax statements for the year in question. If you still disagree with the adjustments made, submit your summer and winter property tax statements to Michigan Department of Treasury for review. Be sure to include a daytime phone number.

• Verify the correct taxable value of your homestead was reported if you bought and/or sold your home. (Line 9)

Taxable Value: This can be found on your property tax statements sent to you by your county, city, township or village office. Do not use the State Equalized Value (SEV) or Assessed Value. NOTE: Homeowners who moved complete Part 3 (lines 45-51) of the MI-1040CR to determine the taxes that can be claimed.

• If Correct taxable value was reported, verify your property taxes/rent was prorated correctly based on the time you occupied each home. If you still disagree with the adjustments made, submit your summer and winter property tax statements/lease agreements to Michigan Department of Treasury for review. Be sure to include a daytime phone number.
• If Incorrect taxable value was reported, recalculate your homestead property tax credit using your prorated share of property taxes/rent based on the time you occupied each home. If you still disagree with the adjustments made, submit your summer and winter property tax statements/lease agreements to Michigan Department of Treasury for review. Be sure to include a daytime phone number.

• Verify the taxes levied (billed) for the tax year in question were reported correctly. (Line 10)

Taxes Levied: You can only claim the amount of property taxes levied (billed) during the year in question, no matter when they were paid. Do not include special assessments or penalty/interest fees.

Do Not use property tax information from your mortgage statement, as this may contain taxes paid for a prior
tax year.

• If Correct taxes levied amount was reported continue to next topic.
• If Incorrect taxes levied (billed) amount was reported, recalculate your property tax credit using the correct
  taxes levied. If you still disagree with the adjustments made, submit your summer and winter property tax
  statements for the year in question to Michigan Department of Treasury for review. Be sure to include a
  daytime phone number.

• Verify the taxes levied (billed) and reported for the tax year in question did not include special assessments and/or penalty/interest. (Line 10)

Special assessments and/or penalty/interest must be subtracted from the property taxes. Special assessments may include recycling, garbage/rubbish removal, street lights, sidewalks, drains, etc. These are not charged based on a millage rate; therefore they cannot be included in the credit computation.

• If Special assessments and/or penalty/interest were not included, continue to next topic.
• If Special assessments and/or penalty/interest were included, recalculate the homestead property tax credit using the correct amount of taxes levied by subtracting the special assessments and penalty/interest from total taxes. If you still disagree with the adjustments made, submit your summer and winter property tax statements for the year in question to Michigan Department of Treasury for review. Be sure to include a daytime phone number.

• Did you move during the year?

• If Yes, the property taxes for both homes must be prorated. Complete Part 3 (lines 45-51) of the MI-1040CR
  to determine the taxes that can be claimed. Use only taxes levied in the year of the claim, then prorate taxes
  based on days you owned and occupied the home as your principal residence. Do not include the taxes listed
  on your settlement statement. You may not claim more than 365 days total. If you sold a home, you must also include the capital gain from the sale of your home in total household resources even if the capital gains are not included in adjusted gross income.
• If No, continue to next topic.

• What was the principal residence exemption (P.R.E.) percentage on the property?

• 100% P.R.E. means that your property is exempt from school operating tax.
• Between 1% and 99% P.R.E. means that part of your property is not used as your principal residence and your property is subject to a portion of school operating tax.

For example, if you use 10% of your property as a business, then your principal residence exemption would be 90%. You cannot claim the school operating tax for the property tax credit because that is taxed to the business on your property. After subtracting the school operating tax from your property tax bill, you can claim 90% of the remaining property tax for the credit.

How to compute your homestead property tax credit, if your P.R.E is between 1% and 99% P.R.E.

Total taxes levied for tax year	$1,348
Subtract School Operating Tax	– $123
Total	$1,225
Multiply by percentage declared as P.R.E.	x 90%
Amount of taxes that can be claimed	$1,102

 

• 0% P.R.E. means that you have not claimed a principal residence exemption and all of your property is subject to school operating tax. If you own and occupy the property as your home, you should file a Principal Residence Exemption Affidavit (Form 2368) with your county, city, township or village and submit your summer and winter property tax statements to Michigan Department of Treasury for review. Please note that a second home or a vacation home does not meet the qualifications of a principal residence.

• Do you share ownership of your home?

If two or more individuals share ownership and occupy the homestead each may file a homestead property tax credit.  The
claim must be based only on his/her prorated share of the taxable value and property taxes and his/her own total household
resources. Property taxes levied must be divided equally between each individual.
Note: Any gifts of cash or expenses paid on your behalf must be included in total household resources.
If you still disagree with the adjustment, respond in writing, along with a copy of your summer and winter property tax statements for the year in question, a daytime phone number and a copy of the adjustment message/letter you received to:

Michigan Department of Treasury
P O Box 30058
Lansing MI 48909

Allow up to 90 days after your correspondence has been imaged onto our system for review. You will be notified in writing upon completion.

For the status of correspondence visit e-Services.

 

Contact Us with any questions regarding the Michigan Homestead Tax credit

Common Sales and Use Tax Exemptions and Requirements

Information regarding Michigan Tax Exempt Forms via:

www.michigan.gov/taxes

501(c)(3) and 501(c)(4) Organizations – 501(c)(3) and 501(c)(4) organizations must provide proof that they are exempt under these codes by the Internal Revenue Service. In addition to this they must provide a certificate of exemption stating that the property will be used or consumed in carrying out the operations of the organization. Revenue Administrative Bulletin 1995-3 and 2002-15 has more information on this topic.

Wholesalers purchasing for resale should provide the seller with a completed form 3372 Michigan Sales and Use Tax Certificate of Exemption and check the box for Resale at Wholesale. Sales tax licenses are not issued to wholesalers.

Retailers – Retailers purchasing for resale should provide a signed exemption certificate by completing form 3372 Michigan Sales and Use Tax Certificate of Exemption and check box 1. For Resale at Retail in Section 3, Basis for Exemption Claim. Their sales tax license number must be included in the blank provided on the exemption claim. However, a seller should not accept the sales tax license number alone as a claim of exemption. The department does not issue tax-exempt numbers.

Industrial Processors – An industrial processing exemption is allowed for property which is used or consumed in transforming, altering, or modifying tangible personal property by changing the form, composition, or character of the property for ultimate sale at retail or for sale to another processor for further processing and ultimate sale at retail. The industrial processing exemption does not include property which is or becomes affixed to real estate, office supplies, administrative office equipment, or vehicles licensed for public highway use, except when the vehicle is used to mix and agitate materials added at the plant or job site in the concrete manufacturing process. Industrial processing also does not include the receipt or storage of raw materials extracted by the user or consumer or the preparation of food or beverages by a retailer for retail sale. The exemption certificate is 3372 Michigan Sales and Use Tax Certificate of Exemption .

Churches – Sales to organized churches or houses of religious worship are exempt from sales tax. These exempt sales must not involve property used in commercial enterprises. Vans or buses may be purchased exempt if the manufacturer’s rated seating capacity is 10 or more and it is used primarily for transportation of persons for religious purposes. Churches may not purchase any other type of vehicle exempt. Anyone who is directly engaged in the business of constructing, altering, repairing, or improving real estate for a church or a house of religious worship is liable for the sales tax on the inventory value of the materials affixed to the property, even if the church purchases the materials. Revenue Administrative Bulletin 1995-3 and 2002-15 has more information on this topic.

Hospitals – Sales to hospitals are exempt from sales tax when the organization is not operated for profit. The income or benefit from the operation must not inure to any individual or private shareholder, directly or indirectly. Revenue Administrative Bulletin 1995-3 and 2002-15 has more information on this topic.

Schools – Sales to schools and parent cooperative preschools are exempt from sales tax when the organization is not operated for profit. The income or benefit from the operation must not inure to any individual or private shareholder, directly or indirectly. PTA, PTO, and all other groups and organizations must qualify separately for exemption when making purchases for their organizations. Sales to teachers are subject to tax. Revenue Administrative Bulletin 1995-3 and 2002-15 has more information on this topic.

Government – Sales to the United States government, the State of Michigan and its political subdivisions, departments and institutions are not subject to tax, if the sales are ordered on the government form or purchase order and are paid for directly to the seller by warrant on government funds. Sales to the American Red Cross, and its chapters and branches are exempt. All sales to other states or countries are subject to Michigan sales tax. Sales to employees of the government for their own use are subject to tax. The exemption certificate is 3372 Michigan Sales and Use Tax Certificate of Exemption

 

If you have any questions about Michigan Tax Exempt Forms, Please Contact Us today to speak with an experienced CPA.