07.30.09
Proposal A Illustration
Are you thinking about transferring a parcel of real estate from yourself to yourself and another as tenants-in-common (not as joint tenants)? If the parcel is in Michigan, you’re going to face an anomalous property tax result.
Under 1994’s Proposal A, all property values for purposes of taxation became subject to a limit: they could only go up the rate of inflation or 5%, whichever is less. Prop A also provided, though, that when a piece of property is transferred, the limit (the “cap”) comes off, with the result that the parcel is then valued (for purposes of taxation) at its then-fair market value.
If you transfer a parcel into a tenancy-in-common, retaining one-half for yourself, you are essentially transferring one-half of the parcel, with the result that one-half of the cap should come off. Example:
Parcel’s Current Fair Market Value: $90,000.00
Parcel’s Current Taxable Value: $50,000.00
Parcel’s New Taxable Value: $70,000.00 ($25,000 original one-half + $45,000 uncapped one-half).
The resulting tax hit? It’s impossible to say. To figure it out, you need to multiply your tax jurisdiction’s mills by 70 and contrast it with the old tax hit.
