The state of Michigan allows residents to claim homesteads, but that doesn't mean people should be flooding to the state with the idea in mind of working 40 acres of real estate. In Michigan, the homestead credit is a tax credit that qualifying homeowners and renters can claim on their property taxes. Note that this is not the same as the Principal Residence Exemption, or PRI in Michigan.
What Is a Michigan Homestead Credit?
Michigan law describes a homestead for tax purposes as “the place where you have your permanent home.” It is available for qualified individuals who own or rent a house in Michigan and live in that house at least six months out of the year.
If it is a summer cottage, it will not qualify as a Michigan homestead. It must be the principal residence of the person claiming it as a homestead.
Eligibility for a Michigan Homestead Credit
A homestead credit is available to Michigan residents depending on income level and the home's value. These limits change regularly. For 2022, the credit is available if all of these conditions are met:
- Individual owns or rents and occupies a Michigan homestead for at least six months during the year.
- Taxable property value was $136,600 or less.
- Total household resources are $60,600 or less for full-time residences and must be annualized for part-time residents.
- Individual or family receiving all of their total household resources from the Michigan Department of Health and Human Services do not qualify for the credit.
Note that for property owners, their property taxes must exceed 3.2 percent of their total household resources to qualify for a Homestead Property Tax Credit.
For renters, the credit is based on the property taxes they pay indirectly through their rent. Their allowable percentage of rent must exceed 3.2 percent of their total household resources to qualify.
What Are Total Household Resources?
Since eligibility for the credit under Michigan state law depends in part on Total Household Resources, it is important to understand exactly how to calculate this.
Total Household Resources for exemption credit purposes include all income, taxable and nontaxable, of both spouses in a household. Gifts of cash including payments of debts made for an individual must also be included. If the household is that of a single person, it is all of that person's income.
Deductions are not permitted when making this calculation. For example, losses from business activity cannot be cited to reduce total household resources.
Using a Homestead Property Tax Credit
So what does a person get for claiming a homestead credit in Michigan? Essentially, they get a break on their property taxes. The taxes that can be claimed for the credit are only those taxes levied in the same year that the claim is filed plus administrative collection fees up to 1 percent.
Some taxes and expenses may not be claimed. These include:
- Delinquent property taxes.
- Penalty and interest charges.
- Delinquent water or sewer bills.
- Property taxes on cottages or second homes.
- Association dues on the property.
- Most special assessments.
Filing for a Homestead Property Tax Credit
The form a Michigan taxpayer must file to claim a Homestead Property Tax Credit depends on the filer's circumstances. The forms are the MI-1040CR for most filers, and the MI-1040CR-2 for certain categories of filers. The latter is called the Michigan Homestead Property Tax Credit Claim for Veterans and Blind People. These forms may yield different amounts of tax credits.
Residents who are legally required to file a Michigan Individual Income Tax return MI-1040 must file a Michigan Homestead Property Tax Credit Claim MI-1040CR with their MI-1040. Anyone not obligated to file an MI-1040 can file the MI-1040CR by itself.
Some residents are instructed to complete both the MI-1040CR and the MI-1040CR-2 and file whichever form yields the larger results. These include:
- Residents who are blind and own their own home.
- Active military members.
- Eligible veterans.
- Surviving spouses of veterans.
Blind residents who rent must use the MR-1040CR form.
Principal Residence Exemption
This Michigan property tax reduction program was previously called the Michigan Homestead Exemption, but is now known as the Principal Residence Exemption, or PRE. Despite similarity of the former name and the homestead credit, the PRE is a completely separate program from the Michigan Homestead property tax credit.
The PRE is available to anyone, regardless of income, who owns a principal residence in the state. It exempts a principal residence from the tax levied by a local school district for school operating purposes up to 18 mills (one mill is $1 of tax per $1,000 of taxable value.)
The mill rate is the amount of tax payable per dollar of the assessed value of a property. The mill rate is based on "mills," a figure that represents the amount per $1,000 of the assessed value of the property, which is used to calculate the amount of property tax.
Forms for Principal Residence Exemption
What steps does a new homeowner have to follow to get the PRE? They must fill in and sign a Principal Residence Exemption (PRE) Affidavit and forward it to the local township or the city assessor. It is typical for the real estate agent to handle this matter when someone buys a home as a principal residence in the state.
Payments automatically are reduced and remain lower the entire period that the home is a primary residence. If and when the person moves, they must notify the city or township assessor within 90 days of the move.
PRE vs. Homestead Credit
There are several important differences between the Principal Residence Exemption and the Homestead Credit:
- The PRE is available to any homeowner of a principal residence in Michigan; a homestead credit is only available to people whose income and property value falls below certain limits.
- The homestead tax credit must be filed annually with the Michigan Individual Income Tax Return; once filed, the PRE is in place for the remainder of the years the person uses the home as their primary residence.
- The benefits are different. The PRE exempts a principal residence from the tax levied by a local school district for school operating purposes up to 18 mills. Michigan’s homestead credit allows eligible residents to subtract a certain amount from the taxes that they still owe.
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.