Property Tax Bill Would Ease Family Property Transfer

Story first appeared in the Traverse City Record-Eagle

Measure aims to cap tax when land passes to relative
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 transaction.

Rep. Peter Pettalia, 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 values rise.

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 lakeside cottage and cannot afford to keep it because the property is now worth more than the previous family member was taxed.

“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.

If approved, the law would become a 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.”

But the bill could create headaches for local assessors.

“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 administrator, in my opinion.”

Assessors would have to see proof of family as far as third cousins, a potentially difficult task because last names are different and proof is hard to come by.

"Are we going to start doing DNA tests to see if they meet the criteria?” Spencer said.

The bill would require assessors to go back through old deeds. The bill would affect all land transactions to December 8, 2006.

“If you want it done according to what this bill 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 Swayne McLachlan, president of the group. The organization typically opposes such exemptions because local governments want the additional revenue created by sales or property owners’ deaths.

“It gets into the question of fairness and inequality,” McLachlan said.

But Pettalia said that it is the large tax burden on a family inheritance that is unfair.

“It’s Michigan’s family heritage to keep these properties with families,” he said.