The Principal Residence Exemption (PRE) is a provision of Michigan’s General Property Tax Act (MCL 211.7cc) that allows the owner to exempt a principal residence from the tax levied by the local school district up to the amount provided in MCL 380.1211 (currently 18 mills). It is claimed by completing Form 2368 (Principal Residence Exemption (PRE) Affidavit) and filing it with your local township or city office. According to MCL 211.7cc(2), this affidavit must be filed on before June 1st to apply to the immediately succeeding summer tax levy and all subsequent tax levies, or filed on or before November 1st to apply to the immediately succeeding winter tax levy and all subsequent tax levies. Upon receipt of the affidavit, the tax assessor shall continue to apply the principal residence exemption to the property until December 31st of the year that the property is transferred or no longer a principal residence.
An “owner” means any of the following pursuant to MCL 211.7dd(a):
- (i) A person who owns property or who is purchasing property under a land contract.
- (ii) A person who is a partial owner of property.
- (iii) A person who owns property as a result of being a beneficiary of a will or trust or as a result of intestate succession.
- (iv) A person who owns or is purchasing a dwelling on leased land.
- (v) A person holding a life lease in property previously sold or transferred to another.
- (vi) A grantor who has placed the property in a revocable trust or a qualified personal residence trust.
- (vii) The sole present beneficiary of a trust if the trust purchased or acquired the property as a principal residence for the sole present beneficiary of the trust, and the sole present beneficiary of the trust is totally and permanently disabled.
- (viii) A cooperative housing corporation.
- (ix) A facility as defined and registered under the continuing care community disclosure act.
Pursuant to MCL 211.7dd(c), “principal residence” means the 1 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. This definition includes the percentage of a multi-unit dwelling owned and occupied by the taxpayer, a life care facility registered under the continuing care disclosure act, and property owned by a cooperative housing corporation and occupied by tenant stockholders. Principal residence includes all of an owner’s unoccupied property classified as residential that is adjoining or contiguous to the dwelling and that is owned and occupied by the owner. Principal residence also includes a portion of a dwelling owned by the taxpayer that is rented or leased to another person as a residence provided that the leased portion is less than 50% of the total square footage of living space of that dwelling.
A person is not entitled to claim the Principal Residence Exemption under any of the following conditions pursuant to MCL 211.7cc(3):
- (a) That person has claimed a substantially similar exemption, deduction, or credit, regardless of amount, on property in another state.
- (b) that person or his or her spouse owns property in a state other than this state for which that person or his or her spouse claims an exemption, deduction, or credit substantially similar to the exemption provided under this section, UNLESS that person and his or her spouse file separate income tax returns.
- (c) That person has filed a nonresident Michigan income tax return, except active duty military personnel stationed in this state with his or her principal residence in this state.
- (d) That person has filed an income tax return in a state other than this state as a resident, except active duty military personnel stationed in this state with his or her principal residence in this state.
- (e) That person has previously rescinded an exemption under this section for the same property for which an exemption is now claimed and there has not been a transfer of ownership of that property after the previous exemption was rescinded if that person has claimed an exemption for any other property (or the exemption remains in effect for other property for that tax year even if rescinded and there was no transfer).
Within 90 days of the exempted property no longer being used as a principal residence, the taxpayer must file a rescission form with the local tax collecting unit renouncing the claim to exemption. The owner’s failure to file this rescission subjects him or her to a $5.00 per day penalty for each day after the 90 days has lapsed, up to a maximum of $200.00. If the owner is otherwise eligible to claim an exemption for his or her current principal residence, he or she may continue to retain that exempt for up to three tax years if that property is not occupied, is for sale, not leased and not used for a business or commercial purpose.
Pursuant to MCL 211.7cc(5), “an owner of property who previously occupied that property as his or her principal residence but now resides in a nursing home, assisted living facility, or, if residing there solely for purposes of convalescence, any other location may retain an exemption on that property if the owner manifests an intent to return to that property by satisfying all of the following conditions:”
- (a) The owner continues to own that property while residing in the nursing home, assisted living facility, or other location.
- (b) The owner has not established a new principal residence.
- (c) The owner maintains or provides for the maintenance of that property while residing in the nursing home, assisted living facility, or other location.
- (d) That property is not leased and is not used for any business or commercial purpose.
Not surprising, city and township units will aggressively protect their tax base by strictly construing the definition of “owner” and “principal residence” in deciding whether to accept or deny a claimed exemption. In the event of a denial, the tax assessor must notify the owner and the Michigan Department of Treasury in writing of the reasons for the denial and advise that it may be appealed to the residential and small claims division of the Michigan Tax Tribunal within 35 days. The assessor may deny a claim of exemption for the current year and for the three immediately preceding calendar years. The following is a sample of recent court cases relating to the application of the Principal Residence Exemption:
- EldenBrady v City of Albion, 294 Mich App 251; 816 NW2d 449 (2011) – The Tax Tribunal denied a petitioner’s claim to the Principal Residence Exemption to property adjacent to a dwelling on the basis that it was not “unoccupied”. The tribunal ruled that this adjacent property was not “vacant” because it contained an abandoned, unimproved and unused school building. The Michigan Court of Appeals reversed and held that the Tax Tribunal improperly used the definition of “vacant” for “unoccupied” when determining eligibility for the exemption, despite the fact that the words are common synonyms. “Unoccupied” means to be without human occupants, but does not mean that its must be “completely devoid of any inanimate objects, contents or structures”. Therefore, petitioners were eligible to claim the Principal Residence Exemption for the unoccupied, adjacent property.
- Drew v Cass County, 299 Mich App 495; 830 NW2d 832 (2013) – The Tax Tribunal denied a petitioner’s claim to the Principal Residence Exemption where insufficient proof was show to prove that the property was in fact the petitioner’s primary residence. The Michigan Court of Appeals upheld the Tax Tribunal, holding that the petitioner’s presentment of driver’s licenses, voter registration cards and taxes returns was not conclusive proof of residence when the municipality presented evidence that the property was used as a seasonal home due to the low utility bills and other area residents testified that no one lived there permanently. The Court of Appeals further held that review of the Tax Tribunal’s decisions is very limited and no factual findings will be disturbed as long as they are supported by competent, material and substantial evidence on the whole record.
- Flowers v Bedford Twp, 304 Mich App 661; 849 NW2d 51 (2014) – The Tax Tribunal denied a petitioner’s claim to the Principal Residence Exemption where she acquired her property pursuant to a “ladybird deed”. The petitioner’s husband executed a deed granting the petitioner a life estate in the home and provided his children with a future interest. The tribunal denied the exemption because the petitioner was not considered an “owner” under the statute (due to only holding a life estate) and was not even the previous owner of the home before the ladybird deed was executed. The Michigan Court of Appeals reversed, determining that the holder of a life estate has the right to possess, control and enjoy the property and, therefore, the petitioner is considered an “owner” under the statute to claim the exemption.
- Rentschler v Melrose Twp, 322 Mich App 113; 910 NW2d 711 (2017) – The Tax Tribunal denied an owner’s claim to the Principal Residence Exemption where he rented his dwelling to others more than 14 days per year in violation of guidelines formulated by the Michigan Department of Treasury. The Michigan Court of Appeals reversed, determining that the owner met all of the conditions required under statute to claim the exemption despite the dwelling being rented more than 14 days per year. The Department’s interpretations “are granted respectful consideration, and if persuasive, should not be overruled without cogent reasons”, but they do not have the force of law and should not be followed where it is consistent with the General Property Tax Act.
- Breakey v Dep’t of Treasury, __ Mich App __; __ NW2d __ (2018)(Docket No. 339345) – The Tax Tribunal denied a petitioner’s claim to the Principal Residence Exemption where her interest is a lifetime benefit conferred upon her by an irrevocable trust that owns the residential property. Her husband created a revocable living trust that received ownership of the property and provided, after his death, that trust property be held to benefit the petitioner and “maintain the standard of living”. The husband passed away and the trust became irrevocable. The tribunal denied the exemption because the petitioner was not considered an “owner” under the statute (due to ownership by the irrevocable trust) and was not even the previous owner of the home. The Michigan Court of Appeals reversed and held that the petitioner had the same general rights under the trust as a life estate holder in Flowers (“to possess, control and enjoy the property during the holder’s lifetime”) and so should be treated as such for the purposes of claiming the Principal Property Exemption.
The statute prescribes a tax penalty of $500.00 for a person claiming the Principal Residence Exemption under this law and a substantially similiar exemption, deduction or credit in another state (e.g. snowbirds claiming the exemption for a house in Michigan and a house in Florida). Additionally, pursuant to MCL 211.120, it is a crime to claim the PRE and do any of the following:
- (a) Make a false or fraudelent affidavit claiming an exemption or a false statement on an affidavit claiming an exemption.
- (b) Aid, abet or assist another in an attemot to wrongfully obtain an exemption.
- (c) Make or permit to be made for himself or herself or for any other person a false affidavit claiming an exemption or a false statement on an afidavit claiming an exemotion, either in whole or in part.
- (d) Fail to rescind an exemption after the property subject to that exemption is no longer a principal residence.
- (e) Claiming a substantially similar exemption, deduction, or credit on property in another state.
If you have questions about the Principal Residence Exemption or any other aspects of Michigan tax law, do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC.