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Revenue Administrative Bulletin 2021-25

Revenue Administrative Bulletin 2021-25

INDIVIDUAL INCOME TAX HOMESTEAD PROPERTY TAX CREDIT CALCULATION WHEN PRIOR YEAR PROPERTY TAXES ARE ADJUSTED

Approved: December 22, 2021

(Replaces Revenue Administrative Bulletin 1990-12)

Pursuant to MCL 205.6a, a taxpayer may rely on a Revenue Administrative Bulletin issued by the Department of Treasury after September 30, 2006, and shall not be penalized for that reliance until the bulletin is revoked in writing.  However, reliance by the taxpayer is limited to issues addressed in the bulletin for tax periods up to the effective date of an amendment to the law upon which the bulletin is based or for tax periods up to the date of a final order of a court of competent jurisdiction for which all rights of appeal have been exhausted or have expired that overrules or modifies the law upon which the bulletin is based.

 

RAB 2021-25.  This Revenue Administrative Bulletin (RAB) explains and illustrates the procedures for an owner to calculate the homestead property tax credit under the Michigan Income Tax Act (MITA)[1] when there is an adjustment (assessment or refund) of property taxes for a prior year.

  1. Brief Overview of the Homestead Property Tax Credit for Property Owners

    2. Under the MITA, certain Michigan residents who own or rent property may qualify to claim a refundable homestead property tax credit against their income tax liability.[2]  An owner of a Michigan principal residence calculates the credit using the real property taxes levied on the owner's homestead.[3]  Property taxes used to calculate the credit are the ad valorem taxes due and payable that are levied on a homestead within Michigan.[4]  Property taxes include administrative fees, but exclude penalties, interest and most special assessments.[5]  Interest received or paid on the adjusted property taxes may not be claimed in the credit.[6]  For all claimants, the maximum amount of the credit is $1,500 for tax years 2018 through 2020.[7] Beginning with tax year 2021, the maximum credit amount allowed for the immediately preceding tax year ($1,500) is adjusted by the percentage increase in the U.S. Consumer Price Index (CPI) for the immediately preceding calendar year, rounded to the nearest $100 increment.

    For general claimants,[8] the homestead property tax credit is equal to 60% of the amount by which the claimant's real property taxes on the homestead exceed 3.2% of a claimant's total household resources.[9]  For each increment of $1,000 by which total household resources exceed $51,000, the credit is reduced by 10%.[10]  Therefore, a claimant is not eligible for the credit if total household resources exceed $60,000, adjusted annually for inflation.[11]       

    Example 1

    Claimant has total household resources of $49,000. In 2020, property taxes of $2,800 were levied on the property. Claimant is not disabled and is not 65 years or older. Claimant's homestead had a taxable value of $129,000.[12] The 2020 homestead property tax credit is calculated as follows:[13]:

    Property taxes eligible for the credit                                                                          $2,800

    Deduct 3.2% of total household resources (0.032 x $49,000)                               (1,568)

    Eligible property taxes after deduction ($2,800 - 1,568)                                         $1,232

    Reduction of eligible property taxes ($1,232 x 0.60)                                                $739

    The credit is the lesser of 60% of $1,232 or the $1,500 maximum credit amount allowed.

    Claimant's homestead property tax credit for tax year 2020 is $739.

  2. Calculating a Current Year Credit to Capture a Prior Year Adjustment

    3. When the property tax assessment for a prior year has been adjusted, and therefore differs from the amount used in the credit computation for the applicable prior year, the MITA requires the difference to be included in the calculation of the current year's credit claim.[14]  That is, the additional assessed or refunded property taxes attributable to prior years must be claimed in the year that the additional property taxes are billed or the refunds are issued.  Interest paid on the adjusted property taxes cannot be claimed.[15]  The treatment of prior year adjustments is the same for all claimant types.

    Example 2: Increase in prior year property taxes

    In 2019, Claimant appealed the denial of the claimed 2019 principal residence exemption and the denial was upheld. Claimant received an assessment in 2020 for additional homestead property taxes of $200 due for the 2019 tax year. In 2020, Claimant had total household resources of $50,000 and property taxes levied of $3,500. Claimant's 2020 homestead property tax credit is calculated as follows[16]:

    Property taxes eligible for the credit ($3,500 + $200)                                              $3,700

    Deduct 3.2% total household resources (0.032 x $50,000)                                    (1,600)

    Eligible property taxes after deduction ($3,700 - 1,600)                                          $2,100

    Reduction of eligible property taxes ($2,100 x 0.60)                                                 $1,260

    The credit is the lesser of 60% of $2,100 or the $1,500 maximum credit amount allowed.

    Claimant's homestead property tax credit for tax year 2020 is $1,260.

    Example 3: Decrease in prior year property taxes

    In 2019, Claimant's homestead had a taxable value of $129,000. Claimant appealed the property's 2019 valuation which resulted in a decrease of the taxable value to $127,000. As a result of the adjustment to the 2019 taxable value, Claimant received a refund in 2020 for reduced homestead property taxes of $200 for the 2019 tax year. In 2020, Claimant had total household resources of $50,000. The homestead had a taxable value of $128,000 and property taxes levied of $3,500. The 2020 homestead property tax credit is calculated as follows[17]:

    Property taxes eligible for the credit ($3,500 - $200)                                                $3,300

    Deduct 3.2% of total household resources (0.032 x $50,000)                                 (1,600)

    Eligible property taxes after deduction ($3,300 - 1,600)                                           $1,700

    Reduction of eligible property taxes ($1,700 x 0.60)                                                 $1,020

    The credit is the lesser of 60% of $1,700 or the $1,500 maximum credit amount allowed.

    Claimant's homestead property tax credit for tax year 2020 is $1,020.

    Example 4: No credit

    In 2020, Claimant's homestead had a taxable value of $100,000 and property taxes of $2,000. Claimant had total household resources of $50,000. In 2020, the local treasurer issued a refund of $450 to Claimant for property taxes that were originally assessed and collected for the 2019 tax year. The 2020 homestead property tax credit is calculated as follows[18]:

    Property taxes eligible for the credit ($2,000 - $450)                                                $1,550

    Deduct 3.2% of total household resources (0.032 x $50,000)                                 (1,600)

    Eligible property taxes after deduction                                                                        NONE

    Claimant will not receive a homestead property tax credit for tax year 2020.

    [1] MCL 206.1 et seq.

    [2] For more information, see Homestead Property Tax Credit, Form MI-1040CR and the instructions to that form. 

    [3] "Homestead" means "a dwelling or unit in a multiple-unit dwelling that is subject to ad valorem taxes … owned and occupied as a home by the owner of the dwelling or unit..."  MCL 206.508(2).

    [4] Id.

    [5] MCL 206.512a. A special assessment may only be included in the calculation of a credit if it is levied using a uniform millage rate, is based on state equalized value or taxable value, and is either levied in the entire taxing jurisdiction or is used to provide police, fire, or advanced life support services and is levied township-wide, except for all or a portion of a village within the township.

    [6] Id. Property taxes do not include interest. Since interest may not be claimed on unadjusted tax assessments, the Department interprets the statute to preclude the claiming of interest on adjusted tax assessments as well.

    [7] MCL 206.520(15).

    [8] In this RAB, the term "general claimant" refers to a person who is a homeowner and is not a renter, senior citizen, qualified disabled individual or veteran.

    [9] MCL 206.522(1) for tax year 2018 and each tax year thereafter.

    [10] Beginning with tax year 2021, homeowners with total household resources that exceed $60,600 do not qualify for the credit. 

    [11] MCL.206.520(8). Beginning with tax year 2021, the minimum total household resources threshold amount established for the immediately preceding tax year will be adjusted each year for inflation by the percentage increase in the CPI for the immediately preceding calendar year and rounded to the nearest $100 increment. Annual adjustments of the taxable value are indicated on the Michigan Homestead Property Tax Credit Claim MI-1040CR.

    [12] Beginning with tax year 2021, homesteads with taxable value of more than $136,600 are not qualified for the credit. MCL 206.520(1).

    [13] Amounts rounded to the nearest dollar.

    [14] MCL 206.524. There is no current year adjustment if the taxpayer did not receive a homestead property tax credit for the prior year and the maximum credit amount provided in MCL 206.520(15) is not adjusted.  

    [15] MCL 206.512a precludes interest from the definition of property taxes for purposes of the credit calculation.   

    [16] Amounts rounded to the nearest dollar.

    [17] Id.

    [18] Id.