Purchase of rental property to be used as primary residence

7 Replies

I've got an interesting scenario here. A relative of mine is purchasing a primary residence through a short sale transaction. The property is owned by an investor who rented the home out for several years. The investor has paid the property taxes through July of next year, and the property is taxed as non-homestead. My relative is being told that he must pay the pro-rated taxes through July, at closing, at the non-homestead rate - even though this will be used as his primary residence. Is this typical? It seems as though the property should be assessed with the homestead exemption for him, and the following should occur.

1. The investor is credited the pro-rated amount, by the township, at the non-homestead rate.

2. My relative would pay the pro-rated taxes, though July, with the homestead exemption.

Thoughts?

The laws in each jurisdiction are going to be different, so where it is located will have a bearing on this answer. In Maryland where I live, you apply for the homestead credit only after you purchase and move into a property. It is not done at closing.

No, the govt agency doesn't rebate back/prorate taxes when a sale occurs.  The buyer will apply for homestead after the closing, and it will go into effect as per local statute.

Good Afternoon!

@Russell Brazil comment above, here in Maryland, the Homestead Tax isn't done until you own the property and must be owner/occupancy. You need to fill out the appropriate forms to apply for it.  Investors do not get that because it is not their primary residence. 

You are in Michigan, and I do not know the laws there, but you can call the tax assessment office and if they can't help you, they will direct you to who can.

Hope this helps!

in Michigan you need to apply for principal residence exemption and it only applies to the upcoming tax year.   Most title companies will include this documentation at the closing and explain to you how it works.

If you don't fill out and turn in the form you don't get the exemption.   For investors, they sometimes get the benefit when they buy a private residence, but it does expire with the following tax year.   The online form is linked below:

www.michigan.gov/documents/2368f_2605_7.pdf

You'll receive a property transfer affidavit in the mail or you can print one out from:

https://www.michigan.gov/documents/l4260f_2688_7.pdf

 Fill it out and mail it back. Highly doubt they will refund the difference from homestead status once paid. Doesn't hurt to ask the title company though!

Originally posted by @Josh Cunningham :

You'll receive a property transfer affidavit in the mail or you can print one out from:

https://www.michigan.gov/documents/l4260f_2688_7.p...

 Fill it out and mail it back. Highly doubt they will refund the difference from homestead status once paid. Doesn't hurt to ask the title company though!

The property transfer affidavit though required does not give an owner occupant a reduced tax rate.

The principal residence exemption (link provided above by @EDWARD KEMPTON) does