In Michigan, if you sell your home the state’s Real Estate Transfer Tax Act imposes a tax on the seller of the property to transfer the deed to the buyer. This tax to the seller of the property is at a rate of $3.75 for each $500 of the sales price. So if you sold the sold the home for $100,000, that equates to $750 in Real Estate Transfer Tax.
However, due to the lower property values in Michigan due to the struggling economy, Michigan homeowners who sold their primary residence during the past three years may be entitled to a refund if they paid this transfer tax.
To qualify for this tax refund, you must meet the following conditions:
1. The property must have been classified as homestead property and occupied as a principle residence.
2. The property’s State Equalized Value (SEV) for the calendar year in which the transfer is made must be less than or equal to the property’s SEV for the calendar year in which it was acquired.
3. The value of the sale or transfer of property is the true cash value. True cash value is defined as the price that could be obtained for the property at private sale and not at auction sale or forced sale.
If a seller pays the State Real Estate Transfer Tax (SRETT) to the Register of Deeds, and later determines that the sale (transfer) of the real property was exempt from the SRETT, the Michigan Department of Treasury will process an application for a refund of the SRETT. Once the application is verified, the Treasury will issue a check payable to the seller for the amount of the SRETT. The application must be filed within four years from the date the tax was paid.
While the exemption of tax is a nice incentive, taxpayers need to be aware that if an exemption is claimed under this section and the sale of the property is found by the treasurer to be at a value other than the true cash value, then a penalty equal to 20% of the tax will be assessed in addition to the tax due to the seller.
There may be a refund opportunity if a residence was sold that meets the above conditions but transfer tax was paid upon the sale. In order to apply for this refund, taxpayers must file Form 2796 Application for State Real Estate Transfer Tax. You can find this form online at http://www.michigan.gov/documents/2796f7_2601_7.pdf