In Michigan, certain homeowners are eligible for a refund of the state real estate transfer tax (SRETT) when they sell their homes. Many homeowners are unaware of the availability of the SRETT refund, which means that they could be leaving hundreds or even thousands of dollars on the table when they sell their homes.
Before addressing the issue of qualifying for the Michigan SRETT refund, let’s talk about what the state real estate transfer tax is. In a nutshell, SRETT is a tax on deeds and other written instruments that transfer an interest in Michigan real estate from one party to another. A common example of such a transfer would be the sale of a residence. Unless otherwise agreed between parties to the sale, the seller of the real estate is responsible for the transfer tax.
The amount of tax owed is tied to the value of the real estate transferred. The state transfer tax rate is $3.75 for every $500 of value transferred. For instance, the SRETT on a house that sold for $300,000 would be $2,250. (Each Michigan county may also assess a separate county transfer tax, which is in addition to the Michigan SRETT).
The SRETT is due at the time that the deed for the property is submitted to the county for recording. A county will not accept a deed for recording unless the transfer tax has been paid unless the transfer is exempt for some reason, such as that the property is being conveyed from a parent to a child. (A list of reasons that a property might be exempt can be found in MCL § 207.526.)
What is the SRETT Refund, and Who is Eligible?
Sellers of a home may be eligible for a refund of Michigan state real estate transfer tax under certain circumstances. In order to qualify for the refund, sellers must meet the following three requirements at the time the property is sold:
- The property being transferred is claimed as the seller’s principal residence (i.e. not a vacation cottage or investment property);
- The state equalized value (SEV) or tax-assessed value of the property was lower in the year that the sellers sold the property than the year in which they purchased it.
- The property was sold for fair market value (a price at which a willing seller and a willing buyer would arrive at in an “arm’s length” transaction.)
If you have sold a house in Michigan within the past four years and the conditions above were all met, you could be eligible for a refund of transfer taxes paid.
Changes to Michigan SRETT Refund Law in 2015
Prior to 2015, the Michigan SRETT refund was only available to sellers if the home sold for less than two times the state equalized value. Let’s take a house that was purchased in 2007 with an SEV of $75.000. The homeowner sold the house, her principal residence, in 2014, when it had an SEV of $73,000. She sold the house to a stranger through a real estate agent for $152,000.
Under the rules then in place, the seller would not have been eligible for the Michigan SRETT refund. Although the house was her principal residence, the SEV was lower in the year of sale than in the year of purchase, and it was an “arm’s length” transaction, the sale price was more than twice the SEV in the year of sale.
In 2015, the Michigan Supreme Court issued an opinion that eliminated the requirement that the sale price be less than two times the SEV in the year of sale. Later that year, then-Governor Rick Snyder signed legislation into law that codified the Supreme Court’s decision. The law also made the refund available retroactively; homeowners who sold their principal residence after June 24, 2011 became eligible to apply for a SRETT refund.
Now, let’s imagine that the exact same transaction described above took place, but with the sale occurring in 2018. The homeowner would have been eligible for a refund of her state transfer tax of $1,140, because the sale price was no longer required to be less than twice the SEV in the year of sale.
Are You Eligible for a Refund of Michigan State Real Estate Transfer Tax?
Many Michigan residents have never heard of the Michigan state real estate transfer tax, and even fewer are aware that they might be eligible for a refund. It is true that more people may have been able to claim a refund of these taxes a few years back, when property values were much lower than they have been recently. Still, it’s worth doing a little research if you have recently sold your house, or are planning to sell it soon.
If you find out that you are eligible for a SRETT refund, you could find yourself with over a thousand dollars, or perhaps more, in your pocket for a small investment of time and effort. You can fill out an application for a SRETT refund online.
To learn more about state real estate transfer taxes and refunds in Michigan, please contact our law office to schedule a consultation.