There has been lots of talk in the legal community about “uncapping” of real estate taxes.  What is uncapping?  Generally, whenever there is a “transfer of ownership” of real estate, the taxable value of that property “uncaps” in the year following the transfer to 50% of the property’s true cash value.  In many cases, especially where the property has been owned by the same person for a long time before the transfer, that means taxes will dramatically increase.

Fortunately, Michigan law provides several exemptions to the definition of the term “transfer of ownership.”  Just recently, the law was changed to clarify that transfers are exempt from uncapping if the transfers were made by what are commonly known as “Lady Bird Deeds”

On December 22, 2015, Governor Snyder signed a law which formally exempts Michigan Lady Bird Deed transfers to close family members from uncapping. Under the new law, an owner of residential real estate can maintain ownership of real estate and provide for its transfer to eligible family members upon his or her death, without uncapping the property’s taxable value.

So, the short version of this new law is that the taxable value of residential property WILL NOT be uncapped on the owner’s death if:  (a) the property is transferred to a close family member (this includes parents, children, adopted children, siblings, grandparents and grandchildren); and (b) the property is not “used for any commercial purpose” following the transfer.  “Commercial purpose” means that the property is used in connection with any business or other undertaking intended for profit, but does not include the rental of residential real property for a period of less than fifteen days in a calendar year.

This new law went into effect on December 22, 2015, but it will apply retroactively to all transfers by Michigan Lady Bird Deeds from December 31, 2014.

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