General Real Estate Information
Taxable Value And Land Transfers
Since 1995, real property taxes in Michigan are based upon the property’s taxable value rather than its true market value. A property’s taxable value is based upon the property’s true market value at some time in the past plus an adjustment factor equal to the lesser of 5 percent or the inflation rate, plus any additions to the property. In no event, however, will the taxable value exceed 50 percent of the property’s true market value. Property owners have the right to challenge the assessor’s determination of a property’s value, including taxable value, each year at the local March Board of Review meeting. Property owners may also appeal the Board of Review’s decision to the Michigan Tax Tribunal.
The assessor will increase a property’s taxable value to equal 50 percent of the property’s true market value when a transfer of the property occurs. Not all transfers, however, result in an increase in the taxable value. Some examples of conveyances that will not result in an increase in the taxable value include:
1. Conveying the property to yourself and others as joint tenants with full rights of survivorship, such as making the property joint with your children.
2. Conveying the property to a partnership, corporation, or limited liability company where the partners, shareholders, or members are the same people who owned the property as individuals. Further, transferring the partnership interest, shares, or membership interest to others after the conveyance to the entity (so long as not more than 50 percent of the total interests are transferred) will not result in an increase in the taxable value.
3. Conveying the property to a trust in which you or your spouse are the sole present beneficiaries.
4. Conveying the property to your spouse.
5. Conveying residential property to your children, grandchildren, siblings, or parents or to your spouse’s children, grandchildren, siblings, or parents so long as they do not use the property for commercial purposes.
There are several other conveyances that will not result in an increase in the taxable value. The Michigan Department of Treasury publishes helpful guidelines you may review and download from Transfer of Ownership Guidelines.
For property that has increased in value since the last adjustment in the taxable value, avoiding an uncapping of the taxable value is an important consideration. Property taxes for properties such as the family cottage can increase substantially if an uncapping of the taxable value occurs. Often, an uncapping event cannot be avoided. Many times, however, an uncapping event can be delayed with careful planning. To see how an uncapping event might affect the property taxes you actually pay, go to Property Tax Estimator.
Special rules and benefits are available for qualified agricultural property. Not only is qualified agricultural property taxed at a lower rate, but, also, provided appropriate documents are prepared and recorded, you may avoid an uncapping of the taxable value regardless of a transfer of ownership.
Homestead Exemption
Property you own and occupy as your principal residence qualifies for a special exemption from certain property taxes. You may not claim property as your homestead unless it is both your principal residence and you have an ownership interest in the property. You do not, however, need to be the sole owner of the property: A life estate interest or a joint ownership interest is sufficient.
Spouses may claim two different properties as homesteads, provided they each live in separate properties as their principal residence. Spouses may not claim their home and a vacation or family cottage as homesteads because neither spouse occupies the family cottage as the spouse’s principal place of residence.
You must file a Homeowner’s Principal Residence Exemption Affidavit with the local assessor to claim the homestead exemption. A Homeowner’s Principal Residence Exemption Affidavit filed by May 1 of any year is effective for taxes first billed in that year. Generally, an affidavit filed after May 1 will not be effective until the following year, although there is a procedure to receive the homestead exemption if the property, in fact, qualified as your homestead before May 1.
Other states, such as Florida, also provide favorable tax treatment for homestead property. As a general proposition, it is not possible to claim a Michigan residence as your homestead and a residence in another state as your homestead.
The Michigan Department of Treasury publishes guidelines discussing many aspects of the homestead exemption. The guidelines and other homestead exemption information are available at: www.michigan.gov/taxes. Many local assessors also have assessment information available online. A review of the assessment information will show if your property is already receiving the benefits of the homestead exemption.
Some of the assessment information available online includes:
- City of Battle Creek
- Pennfield Township
- City of Springfield
- City of Coldwater
- Coldwater Township
Land Division Act
Michigan’s Land Division Act governs the splitting or dividing of land. There are many ways to divide a larger parcel of land into smaller parcels. The owner could create a plat, dividing the large parcel into lots. The owner could create a site condominium development under the Condominium Act, dividing the large parcel into condominium units. Creating either a plat or a condominium development is complex. For those desiring to create only a few smaller parcels out of a larger parcel, the Land Division Act provides a simpler method of dividing a large parcel into smaller parcels.
The Land Division Act permits the division of larger parcels into smaller parcels, with the number of smaller parcels permitted based upon the size of the large parcel, called a parent parcel. Parent parcels of less than 20 acres may be divided into four parcels. For parent parcels of 20 acres or more, an additional one parcel may be created for each whole 10 acres in excess of 10 acres. For example, a 22-acre parent parcel may be divided into five smaller parcels: four parcels for the first 10 acres and one additional parcel for the 12 acres in excess of 10 acres.
The Land Division Act imposes certain requirements for dividing a larger parcel. Among the requirements:
1. Each resulting parcel must have legal access to a road.
2. No resulting parcel may be more than four times longer than its width.
Before land may be divided, the owner must submit an application to the local municipality where the land is located for approval of the division. Each municipality (the township, city, or village where the property is located) has its own application form that must be completed and submitted. The Land Division Act requires a drawing of the property and the proposed parcels accompany the application. The drawing need not be a survey of the property, but, often, a survey is provided as the drawing.
If a larger parcel is divided into fewer smaller parcels than the Land Division Act would permit, the unused division rights may be conveyed with some or all of the smaller parcels or retained by the property owner for future use in dividing any portion of the parent parcel the owner retains.
Oil, Gas, And Mineral Interests
Michigan has a long history of oil and gas production. From time to time, oil companies or land consolidators are active in Michigan seeking oil and gas leases from property owners. An oil and gas lease typically has a primary term in which the oil company may explore for oil or gas. The primary term is generally one to five years. The oil company will offer an upfront payment to the land owner in exchange for the oil and gas lease. Additionally, the oil and gas lease will contain a provision for the payment of a royalty to the landowner if a well is drilled and becomes productive. If a well is drilled and oil or gas is produced, the term of the lease continues for so long as production occurs. Thus, an oil and gas lease with a two-year primary term may continue in effect for many years beyond the two-year primary term if production occurs.
An oil and gas lease gives the oil company extensive rights to use the surface of the property. Before entering into an oil and gas lease, the landowner should consult with experienced counsel about what rights the oil company will have.
The Michigan Department of Technology, Management & Budget has an online map showing the location of all oil and gas wells in Michigan. You can view that map at: Michigan Map.
Title Issues
Generally, when referring to the title to real property what is meant is record title. The status of record title is determined by reviewing the various documents recorded in the office of the register of deeds where the property is located. Some registers of deeds have information online available for review. For Calhoun County records, go to http://www.co.calhoun.mi.us and look under the “deed” tab to search for recorded documents.
Many matters not of record, however, may affect titles to real property. Fence-line disputes, boundary-line disputes, unpaid real property taxes, unpaid income taxes, unrecorded land contracts, and many other matters may affect title to real property. A neighbor or some other party might acquire title to or a claim against property of another by adverse possession or prescriptive easement.
If you have a question about the title to any real property, you need to consult an experienced real estate attorney to evaluate the issues.
