Michigan Real Estate Transfer Taxes — How You Can Avoid Them
By Gordon Goldie
Real Estate Services
Universal Advisor, 2004 Issue No. 2


TAXES — they’re the bane of our existence. Income taxes, estate and gift taxes, property taxes, sales and use taxes — we constantly struggle to find ways to save and/or avoid them.

This article focuses on opportunities available to owners of Michigan real estate to save Michigan State Real Estate Transfer Taxes (SRETT).

What Is the Michigan SRETT?

Anyone selling or transferring Michigan real estate is required to pay Michigan SRETT, which is imposed when a deed or a contract for the sale or exchange of Michigan real estate is recorded. Consequently, the Michigan SRETT is assessed regardless of whether or not the transfer is subject to Federal or Michigan income tax. For example, an individual who transfers Michigan real property in a valid like-kind exchange under Section 1031 of the Internal Revenue Code is required to pay real estate transfer taxes in connection with the transfer.

How Is the Michigan SRETT Assessed?

The Michigan SRETT is assessed based on the total value of the real property being transferred. If both real and personal property are sold or transferred in the same transaction, only the value of the real property is subject to the Michigan SRETT, provided that either the values of the real and personal property are stated separately on the deed or in the contract or an affidavit is attached to the deed or contract that states the respective values of the real and personal property.

The Michigan SRETT is required to be paid to the county treasurer where the property is located.

How Is the Michigan SRETT Calculated?

The Michigan SRETT is assessed at a rate of $7.50 per $1,000 of real estate value. Each Michigan county also assesses a separate County Real Estate Transfer Tax (CRETT). In most counties, the CRETT is assessed at a rate of $1.10 per $1,000 of real estate value.

For example, if a taxpayer sells or exchanges real estate located in Oakland County, Mich. Worth $5 million, they would be required to pay a total of $43,000 in State and county real estate transfer taxes to the Oakland County Treasurer upon recording the deed for the transfer.

Avoiding the Michigan SRETT

Although there are several exceptions to the Michigan SRETT (see sidebar), the related party transfer exception provides the greatest opportunity to structure transactions to avoid it. In particular, the following types of transactions can be structured to meet the related party exception to the Michigan

SRETT:

• Sale of real estate to a third party

• Like-kind exchange of real property

• Contribution of real estate to a partnership or Limited Liability Company

• Sale of real estate in connection with a home construction contract

If you’re contemplating any transfers of Michigan real estate, please contact me at 248.375.7430 to discuss how you may be able to structure the transaction to avoid the Michigan SRETT. In addition, if you’ve paid SRETT in connection with a transfer of Michigan real estate to a related party within the last four years, you may be eligible for a refund; please contact me for further details.