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Publications | April 11, 2018
3 minute read

New Michigan Laws Guard Against False Property Tax Exemption Claims

In Michigan, local services such as police and fire protection, public education, and other city, village and county services are paid through local property taxes. The tax rate, or millage, is the number of tax dollars the owner of the taxed property pays for each $1,000 of the property’s taxable value. For example, in Grand Rapids where I live, the property tax rate is 52 mills. So the owner of a house in Grand Rapids with a taxable value of $100,000 pays $52 for every $1,000 of taxable value (or 5.2%) resulting in an annual tax bill of $5,200.  

If, however, the owner claims the house as the owner’s principal residence, the owner is exempt from taxes of up to 18 mills levied by the local school district. The owner of the $100,000 house in Grand Rapids who claims a Principal Residence Exemption (PRE) will have property taxes reduced to 34 mills, resulting in an annual tax of $3,400. 

This saves $1,800 per year in taxes. And the higher the taxable value of the property, the higher the savings will be by claiming the residence as your principal residence.  

To reduce your property taxes, owners of multiple properties may be tempted to claim the PRE on their most expensive property. After all, claiming the PRE on your $200,000 house saves you $3,600 per year while claiming it on your $500,000 cottage saves you $9,000.  And those who own houses in more than one state may try claiming a PRE on both a Michigan property and a second property in another state such as Illinois, Florida or Arizona.  

Before making decisions based on tax savings alone, know that generally you may claim only one PRE on a single property that is not rented by others (there are exceptions for married couples who file separate tax returns, for property owners away on military duty, and for those who claim the PRE on two properties while listing one for sale). Also, before simply claiming the PRE on your most expensive property, know that your principal residence is defined as the “one 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.” Factors to determine which property is an owner’s principal residence include what address the owner uses on her driver’s license, where the owner votes and receives mail, and the amount of time spent at the property.

You should also know that last October, Governor Snyder signed into law Public Acts 121 and 122. These new laws make it a misdemeanor to make a PRE claim in Michigan if a similar claim is made on a property in some other state. In such cases, the Michigan homeowner may receive a $500 penalty and lose the ability to claim a PRE in Michigan, even if the out-of-state exemption claim is withdrawn. The new laws also state that homeowners who knowingly give false information on a PRE Exemption Affidavit may be penalized by imprisonment for up to one year and fines up to $5,000.