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Valuable Benefit. As most everyone knows, the Michigan Property Tax Homestead Exemption is a valuable
benefit. The Homestead Exemption shaves 18 mils off the annual property tax bill. Thus, if the taxable value is
$500,000, the homestead exemption amounts to $9,000 per year. As the taxable values of waterfront
properties escalate, the homestead exemption can be important money.


Special Cases. The purpose of this newsletter is not to go into all of the technical requirements for qualifying
property as a homestead. Basically, the law provides that the homestead exemption is available to a person
who owns and occupies a residential property on May 1 of the applicable year. A Homestead Affidavit has to
be filed on or before May 1 in order for the homestead exemption to be applicable to that year.  Usually, the
exemption continues until rescinded. The homestead exemption can be rescinded by the local assessor, if a
property owner dies or moves out. There may or may not be a notice of rescission, so if there is a change of
status relating to a property, it is important to review all communications from the local assessor, including
tax bills. We deal with homestead questions frequently in our practice, and here are some of the special
cases that have come up, which you should be aware of in counseling your client.

Nursing Home Residents or Other Seniors. The Department of Treasury’s own informative brochure on the
homestead exemption states specifically that a nursing home resident does not lose the homestead
exemption for her home as long as the home is not rented out. The same logic should apply to a senior who
moves in with a relative for all or part of the year. However, assessors take note of changes in addresses on
tax bills and may unilaterally rescind the homestead exemption (possibly without notice). We would
recommend appeal of any such action, and even consultation with the assessor, if there is a change of
address, which often happens when the care giving relative lives a distance away.

Home Office. Many people conduct various types of businesses out of their homes and still claim a
homestead exemption for the entire property. Typically, a home office or home business operator claims a
portion of the expenses of the property as business expenses, usually based on a percentage of the
residence devoted to the office or business. Such use will reduce the homestead exemption by the same
proportion.  This reduction in the homestead exemption is often ignored on the theory that the assessor won’t
know about it. We understand that there is more cross-checking with income tax returns going on now to
check for claimed non-residential uses.  Homestead exemptions will be reduced or challenged as a result.
This will obviously impact individuals such as day care or foster care providers, but will also entangle many
retired and semi-retired professionals who are claiming home office deductions.

Spouses. The general rule in Michigan is that a married couple can have only one principal residence.
Sometimes the principal residence is the waterfront property up north, even though the couple maintains a
residence and occupation downstate. However, there is an interesting exception to this rule which may help
some of your clients. If each property is owned by a single spouse and the couple files income tax returns
separately, each can claim the homestead exemption for his or her property. Since we often recommend
dividing property between spouses for estate tax planning, there should be an income tax analysis of the pros
and cons of married-filing-separately couples.

Expatriates. Individuals or families living abroad may own a substantial dwelling in Michigan. The question of
the homestead exemption comes up early in the discussions of Michigan property taxes. Sometimes, ex-pats
don’t file as a permanent resident of any state; sometimes there is more than one state involved, and may be
income tax returns filed in more than one state. The relative costs of filing a Michigan income tax return
compared to the homestead exemption should be examined. The Michigan statutes were recently changed to
provide that a homestead exemption would be denied to any person who files a resident income tax return in
another state. In that regard, the law also provides that the homestead exemption will be denied for a person
filing a non-resident Michigan income tax return. I am aware of clients claiming a homestead exemption
without filing any Michigan income tax return. With electronic cross-checks, this "gap" may close.

Facts and Verification. There are many unique fact situations that merit study. There was considerable
publicity a few months back about a state "crackdown" on homestead abuses that heretofore have been
below the radar.  We urge clients claiming homestead exemption to at least register to vote where their
homestead is and to have a Michigan drivers license. We do know that some individuals claim the
homestead exemption for their summer house. If they live or rent elsewhere, those people should be careful
where their tax bills are sent. Addresses can be important in preserving the exemption.

Conclusion. Property tax questions are becoming more and more important as values climb. Questions
regarding the homestead exemption and circumstances where taxable values are "uncapped" are becoming
more and more common. If you have clients who are concerned about property tax changes and the impact
on their finances, please contact Jim Modrall at 231-941-9660.

©BRANDT, FISHER, ALWARD & ROY, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
WEALTH CONSERVATION:
PROFESSIONAL ALERT
Brandt, Fisher, Alward & Roy, P.C.
August 2004
HOMESTEAD EXEMPTION - USEFUL POINTS
by James R. Modrall III, J.D., C.P.A.
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