The Michigan Homestead Tax Break

Can I interest you in warm sunny winters, white sandy beaches and not having to pick up a shovel anymore?  Oh, and how about not having to pay Michigan state income taxes on your retirement income?  That sounds like a nice break from the cold, snowy, potholed and high-taxed Michigan winter.  So, for those of you who have a house (or thinking about buying one) in Florida the decision to make Florida your residence once you retire may seem like a no brainer.  Yet, for those of you who will continue to own a house here in Michigan too, the decision isn’t so easy because of an additional tax you will pay.  This post is designed to help you determine the higher property tax that you may face on your residence here in Michigan if you do make another state your residence.    

If you are not a primary resident of Michigan the property taxes on your Michigan house will increase by about 40%.  The reason is the Personal Residence Exemption (PRE), formerly the homestead tax, exempts a principal residence from the tax levied by a local school district for school operating purposes.  As a non-Michigan resident you don’t qualify for this same exemption and hence a higher property tax rate.  

You may claim the Principal Residence Exemption if you meet all of the criteria below:

  • You are a resident of the State of Michigan
  • You own and occupy the home as your principal residence
  • Neither you, nor your spouse if you file a joint income tax return, receive an exemption, deduction, or credit substantially similar to the Michigan principal residence exemption on property you own in another state.
  • You have not filed a non-resident Michigan income tax return.
  • You have not filed a tax return as a resident of another state.

In other words, you need to be a Michigan resident and pay Michigan state taxes in order to qualify for the PRE.  Move to Florida, become a resident and no longer pay Michigan state taxes, you won’t be eligible for the lower tax rate.  

So, let’s talk about the difference a resident and non-resident pays here in Michigan.  These rates are from the Michigan Treasury and honestly they seem a little high.  We will be using the actual value of your home, but if you are doing your own calculation on the website, the SEV (state equalized value) is ½ of the actual value of your property.  Let’s take a look at 3 different cities.  

Novi:  Oakland County (Novi Schools)

Property Value Resident Taxes Non-resident Taxes Difference
$100,000 $1,883 $2,636 $753
$250,000 $4,708 $6,589 $1,881
$500,000 $9,415 $13,178 $3,763

Grand Rapids:  Kent County (Grand Rapids Schools)

Property Value Resident Taxes Non-resident Taxes Difference
$100,000 $1,776 $2,675 $899
$250,000 $4,415 $6,688 $2,273
$500,000 $8,830 $13,375 $4,545

Traverse City:  Grand Traverse County (Traverse City Schools)

Property Value Resident Taxes Non-resident Taxes Difference
$100,000 $1,843 $2,743 $900
$250,000 $4,606 $6,856 $2,250
$500,000 $9,213 $13,713 $4,500

It is no secret that many Michigan residents own a place in Florida, too.  It may seem like the logical decision is to make Florida your primary residence in retirement in order to avoid the Michigan state taxes.  Yes, you may save money on your state income taxes, but this tax reduction could be cancelled out by having to pay higher Michigan property taxes.  Many states, including Florida, have an exemption which allows residents to pay lower property taxes.  I didn’t include the analysis of other states resident vs. non-resident property taxes but you should be aware of the difference if you own property in another state.  Unfortunately, taxes don’t go away in retirement.  Without careful planning, they could actually go up.  

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