By SHANNAN O’NEIL
Capital News Service
LANSING – Homeowners could more easily pass their homes to their heirs or sell them to their relatives under a bill that would ease the property tax burden of such transactions.
Rep. Peter Pettalia, R-Presque Isle, introduced the bill to cap property tax when homes and land are passed between relatives. Heirs would pay less taxes than currently paid by family members that inherit land.
Since Proposal A passed in 1994, taxes on a homestead property cannot rise more than 3 percent a year, no matter how much property goes up in value.
But when someone sells their property, the buyer pays taxes on the newly assessed worth, lifting the 3 percent cap. This bill would keep the cap for family-exchanged properties.
Many times, Pettalia said, people inherit a piece of land from their family such as a lakeside cottage and cannot afford to keep it because the property is now worth more than the previous family member was paying tax on.
“It’s a family heritage, they have no intentions of ever selling it but they can’t keep it because the property tax has now become too much of a burden upon them,” Pettalia said.
This bill would become a very good estate-planning tool, said Brad Ward, director of public policy and legal affairs at the Michigan Association of Realtors. “It would be an incentive to create more of those internal family sales.”
However, the bill would give assessors additional headaches.
“I think some of these legislators have to think about the reality and the complexity of what we have and how it can be handled,” said Laurie Spencer, equalization director of Grand Traverse County. “They are asking an awful a lot of assessment administrators, in my opinion.”
Assessors would have to see the proof of family as far as third cousins. This would be a difficult task because last names are different and proof is hard to come by.
“Are we going to start doing DNA tests to see it they meet the criteria?” Spencer said.
Not only would this bill create difficult work for assessors, it would make them go back through old deeds. The bill would affect all land transactions back to Dec. 8, 2006.
“If you want it done according to what this bills says, we definitely would have to put on more staff,” Spencer said.
The Michigan Assessor Association does not yet have a position on the bill, said Dwayne McLachlan, president of the group. However the organization typically opposes such exemptions because it shifts the burden of tax to other people. Local governments will need the money somehow, so there would need to be a new tax.
It gets into the question of fairness and inequality,” McLachlan said.
But Pettalia says that it is the large tax burden on a family inheritance that is unfair.
“It’s Michigan’s family heritage to keep these properties within families,” he said.
© 2011, Capital News Service, Michigan State University School of Journalism. Nonmembers cannot reproduce CNS articles without written permission.
By SHANNAN O’NEIL