Having negotiated, documented and closed hundreds of real estate transactions, I am often surprised to see attorneys who do not specialize in real estate law prepare and record deeds. The deed is a recordable document through which real estate is transferred and the title is passed. Attention to the most minute details is critically important.
Real estate transfers are accompanied by various potential pitfalls. These may include factors such as the post-transfer impact on property taxes and homestead qualification, and potentially unintended tax and/or Medicaid related consequences. Here are just a few of the issues involved of which you should be aware.
Uncapping of Property Taxes
In Michigan, any “transfer” of ownership causes taxable values to be uncapped, when otherwise capped so as to limit allowable property tax increases. Knowing exactly which transfers qualify as exempt transfers, so as to not increase property taxes, is complicated and often misunderstood. Importantly, your local assessor cannot simply disregard a statutory “transfer.” Thus, it is critical to define for the assessor what is and is not an uncapping event[i].
Homestead Tax Credit
Your “homestead” is what you consider your permanent home. You can only have one homestead, and you must both own and occupy that property. Real estate (such as acreage) contiguous to your home may be included within your “homestead,” and qualifying property as your homestead provides you with extensive tax savings. Transfers via deed can inadvertently result in the loss of homestead tax benefits.
Taxation / Medicaid
Real estate transfers may cause unintended tax consequences, or prevent a person otherwise qualified for Medicaid from qualifying. A lost opportunity for a step up in basis caused by real estate transfer can subject a taxpayer to unnecessary capital gains, while a transfer of an exempt Medicaid asset (in the form of real estate) can jeopardize Medicaid assistance altogether.
A deed is not a form. The passing of deeds, and the language used within each deed, frequently come with long term and too often unforeseen consequences. When it comes to real estate law, experience and attention to every detail are essential for a positive long-term outcome.
[i] Through use of Michigan’s Property Transfer Affidavit, which should accompany the deed and be filed by the new owner, with the local assessor, within 45 days of any transfer.