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Tax Information for Home Buyers and Sellers

The following information will give you a better understanding of how buying or selling your home affects your property tax credit claim on a Michigan income tax return.

Due to current economic conditions many individuals are experiencing mortgage foreclosure, repossession of their home and/or cancellation of debt. Any change in home ownership has an impact on the preparation of your MI-1040 and homestead property tax credit. This information is for use by those who have been involved in a mortgage foreclosure or repossession of their homes.
View Information For Mortgage Foreclosure Or Home Repossession And Your Michigan Income Tax Return .

It is important to know the date you moved out of the home you are selling or renting and the date you moved into the home you are buying or renting. If you sell your home for more than you paid for it, plus improvements, you will have a capital gain. In most cases the gain is not taxable, but it must still be included in your total household resources.

View IRS publication 523 for information on capital gains including how to calculate.

If you own and occupy your principal residence, it may be exempt from a portion of your local school operating taxes. To claim an exemption, complete the Homeowner's Principal Residence Exemption Affidavit, (Form 2368) and file it with your township or city by June 1st or November 1st of the year of the claim. As a result, property owners that occupy a property as a principle residence and submit Form 2368 to the local unit on or before June 1st may qualify for a PRE beginning with their summer tax levy. If a property owner occupies a property as a principle residence at any time from June 2nd to November 1st and submits Form 2368 to the local unit on or before November 1st, that property owner may qualify for a PRE for their winter tax levy. Note that this is an exemption from part of the taxes and does not affect your assessment. Owning means you hold the title to the principal residence or that you are currently buying it under a mortgage or on a notarized or recorded land contract. Full year renters should not file this form.

View the definition of “owner”.

Rescinding Your Homeowner's Exemption. If you claim an exemption and no longer use it as a principal residence, you must notify your township or city assessor within 90 days of the change or you may be penalized. This can be done using the Form 2602, Request to Rescind Homeowner's Principal Residence Exemption .

The Frequently Asked Questions on this topic discuss specific situations you may experience when buying or selling your home.

View Frequently Asked Questions About:
Bought Moved Sold Capital Gains
 

Bought

Note: Beginning in 2012 Household Income is replaced with Total Household Resources.
You may not claim a property tax credit if one of the following applies:

  • Your total household resources are over $50,000.
  • Your taxable value exceeds $135,000
    (excluding vacant farmland classified as agricultural).

If I bought and/or sold my home during the tax year, how do I compute my taxes?
If you bought or sold your home, 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 tax year of the claim and then prorate taxes based on days you owned and occupied it as your principal residence. 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/household income even if the capital gains are not included in adjusted gross income.

If I move and claim a property tax credit, what amount of property taxes do I use?
If you bought or sold your home, you must prorate your taxes based on the number of days you owned and occupied each home. 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/household income even if the capital gains are not included in adjusted gross income. Do not include the taxes paid in closing costs on your settlement statement.

What taxes can I claim on my MI-1040CR if I bought a home and moved from a rented apartment?
If you bought your home, you may use the taxes levied shown on the summer and winter property tax statements in the year of claim. Do not include special assessments. Prorate taxes based on the number of days you owned and occupied the home. See MI-1040CR lines 45-51

For rent paid, use total rent paid, then prorate the last month of rent based on days of occupancy. You may not claim more than 365 days total.

What taxes can I claim on my MI-1040CR if I built a home and it was completed part way through the year?
If you built your home, you may use the taxes levied shown on the summer and winter property tax statements in the year of claim. Do not include special assessments. Prorate taxes based on the number of days you owned and occupied the home.

Note: In the year the home was completed, the taxes levied on the home are based on the value of the land only. The following calendar year, the taxes are based upon the assessed value of the land plus the home.

How does the Principal Residence Exemption affect the taxes I claim on my MI-1040CR?
The Principal Residence Exemption may lower your property taxes. If you own and occupy your home, but you have not filed an affidavit with your local assessor, then your real estate taxes may be higher because the bill will include non homestead taxes for school operating millage.

If you have not filed an affidavit and your principal residence exemption is 0%, you may include school operating millage in your property tax credit claim. You may also include the 1% collection fee charged by your city or township.

If your local assessor lowers your property taxes for a prior year's liability through the Board of Review and they refund your overpayment of property taxes, you must deduct the refund from the taxes eligible for credit for the year in which you received the refund.

If I bought my home on a land contract, how do I calculate my homestead property tax credit?
Land Contract - If you purchase your home on a land contract you are considered the owner of the home. Therefore use the total taxes levied on the home in the year of claim for computing the credit.

Note:  Monthly amounts paid per the land contract are not considered rent to be used for the purpose of computing the credit.

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Moved

Note: Beginning in 2012 Household Income is replaced with Total Household Resources.
You may not claim a property tax credit if one of the following applies:

  • Your total household resources are over $50,000.
  • Your taxable value exceeds $135,000
    (excluding vacant farmland classified as agricultural).

If I moved during the year, can I still claim a property tax credit?
You may be eligible to claim a property tax credit if all of the following apply:

Beginning 2012:

  • Your homestead is in Michigan.
  • You were a resident of Michigan for at least six months during the year.
  • You own or are contracted to pay rent and occupy a Michigan homestead on which property taxes were levied.
  • If you own your home, your taxable value is $135,000 or less.
  • Your total household resources are $50,000 or less. Part-year residents must annualize total household resources to determine if the credit reduction applies.
    (If 100% of your total household resources are received from Department of Human Services you do not qualify)

For 2011 and prior years:

  • Your homestead is in Michigan.
  • You were a resident of Michigan for at least six months during the year.
  • You own or are contracted to pay rent and occupy a Michigan homestead on which property taxes were levied.
  • Your household income is $82,650 or less. Part-year residents must annualize household income to determine if the credit reduction applies.
    (If 100% of your total household resources are received from Department of Human Services you do not qualify)

More information

I moved into or out of Michigan during the year. Do I still need to file a Michigan income tax return (MI-1040)?
You are considered a part-year resident if, during the year, you move your permanent home into or out of Michigan. You must pay Michigan income tax on income you earned, received, or accrued while living in Michigan. You must attach the Schedule NR (Michigan Nonresident and Part-Year Resident Schedule) to allocate your income to Michigan and other states.

Please refer to the MI-1040 instruction booklet for more information on part-year residency.

I moved from another state into Michigan. Is my public pension taxable to the state of Michigan?
Pursuant to legislative changes, for tax year 2012 and forward, the allowable pension deduction is limited based upon the birth year of the single filer or the eldest spouse when filing a joint return.

For recipients born before 1946
Some states allow a full deduction or exemption for residents who receive a Michigan public pension.

Therefore, Michigan will allow a deduction for the full amount included in AGI for Michigan residents receiving public pensions from the following states: Alaska, Florida, Hawaii, Illinois, Massachusetts, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wyoming.

For tax year 2013, the subtraction of public pension from other states is limited to the greater of:

  • $48,302 for a single filer or
  • $96,605 for a joint return or
  • the amount allowed as a deduction by the other state to its residents on public pension received from Michigan.

For recipients born in 1946 only
Filers born in 1946, or where the older spouse was born in 1946 if filing a joint return, are eligible for a deduction against all income and will no longer deduct pension and retirement benefits. The deduction is $20,000 for a return filed as single or married, filing separately, or $40,000 for a married, filing jointly return

For recipients born between 1947 and 1952
The first $20,000 for single/married filing separate or $40,000 for joint filers of all qualified private and public pension benefits may be subtracted from Michigan taxable income. Benefits in excess of these limits are taxable to Michigan.

For recipients born after 1952 All pensions (private and public) and retirement benefits are taxable to Michigan.

View more information

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Sold

Note: Beginning in 2012 Household Income is replaced with Total Household Resources.
You may not claim a property tax credit if one of the following applies:

  • Your total household resources are over $50,000.
  • Your taxable value exceeds $135,000
    (excluding vacant farmland classified as agricultural).

If I bought and/or sold my home during the tax year, how do I compute my taxes?
If you bought or sold your home, you must prorate your taxes. Complete Part 3 (lines 45-51) of the MI-1040CR to determine the taxes that can be claimed. Use only taxes levied in the tax year of the claim, and then prorate taxes based on days of occupancy. You may not claim more than 365 days total.

What taxes can I claim on my MI-1040CR if I sold a home and moved to a rented apartment?
If you bought or sold your home, you may use the prorated taxes levied based on the number of days you owned and occupied the home. (Use the total rent paid, prorating for any partial month based on the number of days you occupied the home). You may use the total taxes levied in the year of claim, then prorate total taxes based on days you owned and occupied and use prorated annual rent based on days of occupancy. 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/household income even if the capital gains are not included in adjusted gross income.

    Example:

Bob and Susan sold their home October 2, 2013 and moved to an apartment where they paid $350 per month for the rest of the year. The annual taxes levied on the home were $1,860.

Step 1: Calculate the prorated property taxes levied for the 275 days they owned the home. Divide 275 by 365 to get a percentage of 75%. Multiply the annual taxes levied of $,1860 by 75% totaling $1,395 of prorated taxes.

275/365 = 75%
$1,860 x 75% = $1,395

Step 2: Calculate the prorated rent for the 91 days they rented the apartment. Multiply monthly rent $350 by 12 months for annual rent of $4,200. Divide 91 by 365 to get a percentage of 25%. Multiply the annual rent of $4,200 by 25% totaling $1,050 of prorated rent.

$350 x 12 = $4,200
91/365 = 25%
$4,200 x 25% = $1,050

If I move and claim a Property Tax Credit, what amount of property taxes do I use? Can I use the taxes included in closing costs?
If you bought or sold your home, you must prorate your taxes based on the number of days you owned and occupied each home. 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/household income even if the capital gains are not included in adjusted gross income. Do not include the taxes paid in closing costs on your settlement statement.

What taxes can I claim on my MI-1040CR if I sold a home and bought a new home?
If you bought or sold your home, you must prorate your taxes. The amount of taxes that can be claimed are the total taxes levied in the year of claim on each Michigan homestead, then prorate taxes based on days of occupancy in each home. You may not claim more than 365 days total. You must include the capital gain from the sale of your home in Household Income even if the capital gains were not taxable.

What taxes can I claim on my MI-1040CR if I sold a home and built a home and it was completed part way through the year?
If you sold your home, 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 tax year of the claim and then prorate taxes based on days you owned and occupied the home as your principal residence. You may not claim more than 365 days total. If you sold a home, you must also include the capital gains from the sale in total household resources/household income even if the capital gains are not included in adjusted gross income.

Note: In the year the home was completed, the taxes levied on the home are based on the value of the land only. The following calendar year, the taxes are based upon the taxable value of the land plus the home.

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Capital Gains

View Information For Mortgage Foreclosure Or Home Repossession And Your Michigan Income Tax Return

Note: Beginning in 2012 Household Income is replaced with Total Household Resources.
You may not claim a property tax credit if one of the following applies:

  • Your total household resources are over $50,000.
  • Your taxable value exceeds $135,000
    (excluding vacant farmland classified as agricultural).

When do I realize a capital gain on the sale of my home?
Please refer to IRS Publication 523 Selling Your Home.

Do I have to claim a capital gain on my homestead property tax credit MI-1040CR even if I do not have to pay tax on the capital gain?
Yes, even though the capital gains may not be included in the adjusted gross income. It must be included in total household resources/household income if a Homestead Property Tax Credit MI-1040CR is being filed.

How do I calculate the capital gain?
Please refer to IRS Publication 523 Selling Your Home.

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