Understanding Michigan’s Transfer Tax: A Quick Guide
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Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
When selling your Michigan home, one area you might not have factored into your bottom line is the real estate transfer tax. This tax is a fee paid to the government when the title of a property changes hands from one owner to another. Understanding this tax is important for sellers in Michigan, as it can affect the overall cost of the transaction.
Our comprehensive guide will dig into the nuances of transfer taxes in Michigan, providing sellers with examples of how it works in the Wolverine State, and give you details to consider.
We’ll cover who is responsible for these taxes, the different types of transfer taxes—including state, county, and city levels—and any exemptions that may apply.
Additionally, we’ll offer guidance on estimating these taxes for your home sale in Michigan.
Connect with a Top Agent to Help Maximize Value
Even rockstar agents can’t make your tax liability disappear, but HomeLight data shows that the top 5% of agents across the U.S. help clients sell their home for as much as 10% more than the average real estate agent, helping offset the tax bill.
Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of Michigan area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
Real estate transfer taxes are levied by state or local governments when the ownership of a property transitions from one person to another.
According to the Federal Trade Commission, this tax is incurred during the conveyance of a property’s title—essentially, the formal right to own the property. This tax is a common part of real estate transactions and varies depending on the location of the property, influenced by specific state, county, or city regulations.
The primary purpose behind these taxes is to generate revenue for governmental bodies. The amount owed in transfer taxes can significantly differ based on the property’s geographical location, as each jurisdiction sets its own rates and guidelines.
Who pays for transfer taxes?
In Michigan, the responsibility for paying transfer taxes can differ based on the terms agreed upon in the real estate transaction. Generally, the seller is usually responsible for covering the cost of transfer taxes as part of the closing costs, though if agreed upon by both parties, it can fall to the buyer.
However, it’s important to note that the specifics can vary. The allocation of transfer tax responsibilities can be negotiated between the buyer and seller during the sale process.
As such, both parties must understand their potential obligations and negotiate payment terms as part of their agreement.
What are the types of transfer taxes?
Transfer taxes will typically vary based on local guidelines but can generally be broken down into three categories — state, city, and county, depending on the state. Here’s a quick look at how it works in Michigan.
State transfer taxes
In Michigan, real estate transactions exceeding $100 in value will require the payment of a State transfer tax. This tax is levied at a rate of $3.75 for every $500 (or a portion of $500) of the property’s value.
County transfer taxes
The county transfer tax rate in Michigan is $0.55 per $500.
Other transfer fees
In addition to transfer taxes, there are possible fees to consider, such as from a homeowner’s association or another local neighborhood organization. Again, as these can vary heavily based on location, it’s important to consult a professional.
If you’re selling your home for sale by owner, consulting a professional might help with some of the finer points of the process and give you a better idea of what you can expect.
Are transfer taxes deductible?
Unfortunately, transfer taxes do not qualify for a tax deduction. Nonetheless, there’s an opportunity to mitigate the impact on capital gains taxes. Defined as the profit from the sale of your home or the financial return from selling your property, capital gains are subject to federal taxation, akin to the proceeds from the sale of other assets.
The IRS allows sellers to consider transfer taxes as selling costs, which can then be deducted from the closing sale price of the home. This strategy can reduce the capital gains tax owed on the profit from the sale. It’s a valuable tax planning tactic that can help sellers minimize their tax liabilities and maximize their returns from the sale of their property.
Transfer tax exemptions
Some sellers in Michigan may be eligible for exemptions from transfer taxes, depending on the transaction and their relationship to the buyer. Some situations where this can apply include:
- If the property’s value is under $100.
- Transfers between spouses or within a married couple.
- Conveyances from an individual to their child, stepchild, or adopted child.
- Conveyances from an individual to their grandchild, step-grandchild, or adopted grandchild.
- If the property sells for less than the purchase price in an “arm’s-length” sale. An arm’s-length sale occurs when the buyer and seller act in their best interests to receive the best possible price for the property.
Estimating transfer taxes for your home sale
To get a quick estimate of the potential proceeds from selling your Michigan home, consider utilizing HomeLight’s Net Proceeds Calculator. This tool provides a comprehensive overview of your financial outlook, factoring in closing costs such as transfer taxes, agent commissions, and any recent home improvements. It’s an invaluable resource for gaining a clearer understanding of what you might net from the sale.
Moreover, engaging with a top real estate agent is advisable for a detailed analysis of your transfer taxes and additional closing expenses. A skilled agent can offer insights into who traditionally covers these costs in your area—whether it’s the buyer or the seller—and how these expenses might be negotiated in light of current market dynamics.
Early discussions about transfer taxes with your agent can equip you with strategies to potentially minimize these costs, ensuring a smoother and more profitable home sale.
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