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Michigan Principal Residence Exemption and Short-Term Rentals

Nov 2 | 2021  by

Principal Residence Exemption (PRE)

Under Michigan law, many people take advantage of a principal residence exemption (PRE), otherwise known as a “homestead exemption.” This exemption provides an owner with tax breaks on their principal residences. A “principal residence” is “the 1 place where an owner of the property has his or her true, fixed and permanent home to which, whenever absent, he or she intends to return. . .”

Under MCL 211.7cc(2), a property owner can claim an exemption by filing an affidavit expressing that the “property is owned and occupied as a principal residence” and shall state the owner “has not claimed a substantially similar exemption, deduction, or credit on property in another state.”

However, many owners that have a PRE want to know: if I rent my house as an Airbnb, can I still claim a homestead exemption on that house? Recent cases in the past few years have shed some light on this issue.

Rentschler v. Township of Melrose

For example, in the case, Rentschler v. Township of Melrose, the Court of Appeals of Michigan dealt with just this issue as an appeal from the Michigan Tax Tribunal. A property owner in Boyne City, MI applied for a PRE but had been denied because they worked out of state and used the home as a short-term rental. The owner appealed, proving that his taxes and driver’s license reflected the property address and that he had not claimed another “substantially similar exemption” in another state.

The Tribunal determined that the PRE was denied because the residence was rented out more than 14 days out of the year, which was the requirement in a Michigan Department of Treasury Guideline on PREs. However, the Court of Appeals overturned this decision, stating that the Guidelines are not laws and that the MI state laws that govern PREs do not have such a 14-day requirement.

The ultimate decision of the Court of Appeals was that no, renting your property on Airbnb or for more than 14 days does not render you ineligible to claim a PRE, and the definition of “principal residence” does not restrict an owner from renting and still being eligible for a PRE.

Additionally, many thought that legislation impacting the land use definition of short-term rentals would have a secondary impact on PRE eligibility, because one requirement is to not use a property for commercial purposes. However, the definition of “commercial purpose” specifically excludes rentals for periods of less than 15 days, so short-term rentals appear to be exempted from being defined as “commercial purposes” under the Michigan General Property Tax Act.

Principal Residence Exemption: Ask A Michigan Real Estate Attorney

As with many things, eligibility for a PRE can depend on several factors, such as what address is used for taxes and voting, the energy usage at the property, and even the testimony of neighbors and other long-term residents nearby, as shown in the case Drew v. Cass Co. Therefore, it is best to consult with an experienced Real Estate Attorney if you have any questions on whether your home is eligible for a PRE.

If you have any questions on your PRE eligibility, we here at Fausone Bohn, LLP can help. Call Business and Real Estate Associate Robert C. Pollock today at (248) 912-3213 for a free consultation.