Uncapping – Transfer From Parent to Child

Adam Keilen Estate Planning

The Michigan legislature passed a new law that impacts the way Michigan residential property taxes are assessed. Proposal A went into effect in January, 1995, and limited the amount a parcel of real property could appreciate each year for tax purposes. Under this law, the appreciation was limited to 5% or the rate of inflation, whichever was less.

The value for market purposes is the “State Equalized Value,” or SEV. The value for tax purposes is referred to as the “capped” value and does not have any other purpose other than calculating the amount of property tax applied to the parcel. The result of the different values is that each parcel has two values, and the SEV can increase at a much faster rate than the Taxable Value. As long as the ownership remains the same, the SEV has a minimal impact on the owner, and continues until the parcel is transferred. After the property is transferred, the new Taxable Value is the State Equalized Value, and generally is much higher than the amount paid by the previous owner. The interpretation of “transfer” has many exceptions and exclusions. The new legislation adds an additional exception, and excludes the following from uncapping transfers:

“Beginning December 31, 2013, a transfer of residential real property if the transferee is related to the transferor by blood or affinity to the first degree and the use of the residential real property does not change following the transfer.”Mich. Comp. Laws Ann. § 211.27a(7).

As of December 31, 2013, if the person who becomes the new owner, or transferee, is related to the current owner within the first degree, it is not considered a transfer; therefore, the property is not “uncapped.” Persons related to you by the first degree blood include your parents and your children. Persons related to you in the first degree by affinity include your spouse, mother and father-in-law, son and daughter-in-law, and step-children or parents. All others are related by more than the first degree. Notably, this change in the law will apply only to transfers on or after December 31, 2013.