Michigan's homestead property tax credit is designed to be an economic break for low to moderate-income Michigan residents whose property tax liability is a significant portion of their total expenses. It is worth the savings on your Michigan income tax liability to take the time and see if you qualify. Unlike a tax deduction (which merely reduces how much of your income is subject to Michigan taxation), a tax credit is a dollar-for-dollar reduction of your overall tax bill. For example, if your total tax liability to the Department of Treasury is $5,000.00 and your tax credit is $1,000.00, then your overall tax bill is reduced to $4,000.00.
All Michigan residents must meet the following basic conditions to qualify:
- The homestead must be in the State of Michigan.
- The taxpayer must be resident of Michigan for at least six months during the tax year, may only have one principal residence at a time, and must be an occupant as well as an owner or renter.
- IF YOU OWN YOUR HOME, the taxable value of the homestead does not exceed $135,000.00 through the 2021 tax year. MCL 206.520(1).
- IF YOU RENT YOUR HOME, you must be the renter or lease obligated to pay rent on homestead property to claim the credit. MCL 206.520(5).
- Senior citizens (age 65 or older at the end of the tax year) living in "special housing" such as a nursing home, foster care home, senior apartments are eligible for the homestead property tax credit and not subject to the taxable value limit of $135,000.00.
- Your total household resources must not exceed $50,000.00 for tax years 2017 and earlier, and must not must exceed $60,000.00 for tax years 2018 and later. MCL 206.520(8).
The homestead property tax credit is 60% of the amount by which either the percentage of gross rent (for renters) or property taxes (for owners) exceeds 3.5% of the claimant's total household resources for tax years 2017 and earlier or 3.2% of the claimant's total household resources for tax years 2018 and later. MCL 206.522(1)(a).
- The maximum tax credit is $1,200.00 for tax years 2017 and earlier and increased to $1,500.00 for tax years 2018 and later. The maximum tax credit will be indexed for inflation starting in 2021. MCL 206.520(15).
- A person who rents bases his credit based on 20% of gross rent paid for tax years 2017 and 23% of gross rent paid for tax years 2018 and later. If the claimant rents a home subject to a service charge in lieu of ad valorum taxes, the percentage of gross rent used for the credit is 10%. MCL 206.520(2).
- Senior citizens who have total household resources at or below $30,000.00 receive an additional 4% on top of the 60% of the amount by which either the percentage of gross rent (for renters) or property taxes (for owners) exceeds 3.5% of the claimant's total household resources for tax years 2017 and earlier or 3.2% of the claimant's total household resources for tax years 2018 and later for every $1,000.00 decrease in total household resources from $30,000.00 to a minimum of $21,000.00. MCL 206.522(b).
- "A claimant who is a senior citizen with total household resources of $21,000.00 or less or a paraplegic, hemiplegic, or quadriplegic and for tax years that begin after December 31, 1999, a claimant who is totally and permanently disabled, deaf, or, for tax years that begin after December 31, 2012, blind is entitled to a credit against the state income tax liability for the amount by which the property taxes on the homestead, the credit for rental of the homestead, or a service charge in lieu of ad valorem taxes... for the tax year exceeds the percentage of the claimant's total household resources for that tax year computed as follows (MCL 206.522(c)):"
- 0% for total household resources not over $3,000.00.
- 1% for total household resources over $3,000.00 but not over $4,000.00.
- 2% for total household resources over $4,000.00 but not over $5,000.00.
- 3% for total household resources over $5,000.00 but not over $6,000.00.
- 3.5% for total household resources over $6,000.00 for tax years 2017 and earlier.
- 3.2% for total household resources over $6,000.00 for tax years 2018 and later.
A claimant has to calculate the "total household resources" available on MI-1040CR, which includes both taxable and nontaxable income. Income considered in the total household resources includes:
- All compensation you (and your spouse if filing jointly) received as an employee, including strike pay, supplemental unemployment benefits, sick pay and long-term disability benefits. Unemployment compensation, worker's compensation and VA pension benefits are also included.
- All amounts, whether gains or losses, included in your (and your spouse if filing jointly) adjusted gross income from self-employment (Schedule C), farming (Schedule F), rental income (Schedule E) and distributions from partnerships and S-corporations.
- All your (and your spouse if filing jointly) income from Social Security, Supplemental Security Income (SSI), railroad retirement benefits, annuities, retirement pension and individual retirements accounts (IRAs). For a Roth IRA, only include the portions of distributions that exceeded total contributions.
- All your (and your spouse if filing jointly) capital gains or losses from items includible on federal Schedule D. Losses claimed cannot exceed $3,000.00 (or $1,500.00 if married filing jointly). Gains from the sale of your main residence are included here even if they were excluded from federal taxation.
- All your (and your spouse if filing jointly) alimony and child support received. This also includes all payments received from the State of Michigan as a foster parent.
- Other taxable income including, but not limited to, gambling winnings over $300.00, awards and prizes over $300.00, and forgiven debt includible in federal adjusted gross income.
- Financial support paid for expenses on your behalf (e.g. rent, utilities, food) by relatives and friends, including support you received if claimed as a dependent on someone else's tax return.
- Total payments made to your household by the Michigan Department of Health and Human Services (MDHHS) and other public assistance payments such as adoption subsidies.
- Other nontaxable income including, but not limited to, non-government scholarships and grants for educational purposes, compensation from personal injury claims (whether by judgment or settlement), inheritances (unless received from spouse), life insurance proceeds (unless received on death of spouse), and the minister housing allowance.
The following items paid by you and/or reportable on your federal tax return reduce total household resources and include, but are not limited to, the following:
- Payments to IRAs, SEP, SIMPLE or other qualified retirement plans.
- Student loan interest deduction.
- Moving expenses incurred as a member of the Armed Forces of the United States.
- Self-employment tax deduction and self-employed heath insurance deduction.
- Tax penalties on early withdrawal from savings (e.g. IRA account).
- Alimony paid.
- Jury duty pay from your employer.
- Health savings account (HAS) and Archer medical savings account (MSA) deductions.
- Premiums paid for yourself and your family for medical insurance, dental insurance, vision insurance and prescription drug plans.
Whether you are an owner or a renter, the homestead property tax credit is reduced by 10% for each claimant whose total household resources exceed the minimum total household resources amount of $41,000.00 ($51,000.00 in tax years 2018 and later) and by an additional 10% for each increment of $1,000.00 of total household resources in excess of $41,000.00 ($51,000.00 in tax years 2018 and later). This reduction leads to a total phase-out of the homestead property tax credit when total household resources reaches $50,000.00 ($60,000.00 in tax years 2018 and later). MCL 206.520(8).
Senior citizens living in special housing may elect an alternative computation of the homestead property tax credit if it yields a greater benefit than the standard computation. The alternative senior homestead property tax credit is the amount by which the claimant's annual rent exceeds 40% of total household resources, subject to the same limitations as the standard credit. MCL 206.520(9). The landlord of the special housing must provide documentation upon request to the claimant separating the rent from the other charges. If the landlord does not itemize these charges, then the claimant cannot claim the alternative credit and must compute the standard credit based on a proportionate share of property taxes levied on the property.
The homestead property tax credit can be a big boost to Michigan taxpayers who are already struggling economically and live in areas where property taxes are very high. If you were eligible and have not claimed the homestead property tax credit in the past, then you may be able to amend your previous filed tax return. Amended returns must be filed within 4 years of the original Michigan tax return deadline to claim a refund. If you have questions about the homestead property tax credit or any other aspect of Michigan taxation, then do not hesitate to contact the attorneys at Kershaw, Vititoe & Jedinak PLC today.