The Ins and Outs of the Michigan Principal Residence Exemption (PRE) or Homestead Exemption
In this post we are going to learn a bit more about the Michigan Principal Residence Exemption (PRE), formally called the Michigan homestead property tax exemption.
What is a Principal Residence?
First, lets discuss how to define “Principal”. Your Principal, Primary or homestead residence means you own and live in the property. The actual definition of “Primary” is a bit gray, though. Here is how the state of Michigan explains it on their website:
“Proof of occupancy as a principal residence does not depend on any particular fact, but on whether all the facts and circumstances taken together tend to establish that the property was occupied by the person asserting eligibility for the PRE.”
So if you have a second or vacation home that you spend a lot of time in, you will want to consult an accountant to see if you qualify for this exemption.
What is the Michigan Principal Residence Exemption?
In Michigan, the PRE is a reduction of 18 mils each year on your property taxes on your primary residence. A mil is defined as $1 of tax per $1,000 of Taxable Value. Millage data can be found on the State of Michigan site here.
How Do You Claim the PRE?
In order to gain the benefit of this exemption, you have to submit a form. Here you can find the Principal Residence Exemption (PRE) Affidavit, Form 2368. After completing it, submit it to the assessor for the city or township in which the property is located.
Important Information For Investors
Obviously, the Michigan Principle Residence Exemption is great for homeowners. But new investors forget that the Michigan Principal Residence Exemption will not apply for their rental. Often when a first-time landlord moves out of the home they were living in and decide to lease it, they don’t realize that their property taxes are going up by 18 mills. It’s often missed when they are considering the cost-benefit of the rental.
If you are planning to buy an investment property or turn your primary residence into a rental, you will need to get the millage data and taxable value from the county or city website. When the homestead exemption expires it can increase your annual property taxes anywhere from 30%-50% depending on the municipality and your current millage rates. Millage rates can vary significantly from one municipality to another. We have a post that explains how to calculate your Michigan property taxes.
How Do you UNCLAIM the PRE?
If you are no longer living in your property, you need to rescind the PRE. You can do this by filling out the form Request to Rescind Homeowner’s Principal Residence Exemption (PRE), Form 2602. Then you will submit it with the assessor for the city or township in which the property is located.
If you have any other questions about the Michigan Principal Residence Exemption please contact us at Propetymanagement@accesspmgroup.com. You can also call us at 616-301-9450 in Grand Rapids or 269-220-6033 in Kalamazoo.