Spring Homebuyers: Do You Understand the PRE?

Thinking of buying a home soon? Given the time of year (March), make sure to give some thought to the principal residence exemption.

In Michigan, “a principal residence is exempt from the tax levied by a local school district for school operating purposes.” MCL §211.7cc(1). This is commonly known as the “PRE.”

In plain English, this just means the PRE saves you money. How much? The PRE allows you to exempt up to 18 mills in property taxes annually. For a home with a taxable value of $200,000, 18 mills in property taxes equals $3,600.

Admittedly, in a typical purchase/sale of a Michigan home, the PRE is not an issue. There, are, however, some unusual situations where you might lose out on the PRE for one tax cycle. Residential home sales entered into around this time of year (March) may give rise to one of these unusual situations. This is because you, as the buyer, likely will be closing on your new home in May (50 days between the date of the purchase agreement and the date of closing is typical).

The problem with closing on a home in May is that, if the seller from whom you buy the home did not have a PRE in place, you may not have time to establish residence in your new home before the June 1 PRE deadline. You must own and occupy the home as your principal residence by June 1 to apply the PRE to your summer tax bill. And, perhaps more difficult, you may need to be able to prove as much. How quickly did you change the address on your driver’s license? How quickly did you start utilities up at your new home in your name?

The PRE can be difficult. Like most things, it’s better to address a potential issue proactively rather than trying to fix it after the fact. Initially, a good practice is to ask about the seller’s PRE status before even signing the purchase agreement. Then, if the seller does not have a PRE in place, you can be sure to address the issue.

Vellichor Law would be happy to answer any questions you may have about the PRE, property taxes, or real estate generally. Just give us a call.