INCOME TAX - HOMESTEAD PROPERTY TAX CREDIT WHEN PROPERTY TAXES ARE ADJUSTED FOR PRIOR YEARS

RAB-90-12. This Bulletin explains and illustrates the procedure for calculating a homestead property tax credit (form MI-1040CR) when a property tax assessment or refund has altered the property tax liability of a prior tax year.

Michigan Income Tax Treatment

The Michigan Income Tax Act, MCL 206.524(l) provides "If the amount of the property taxes used as a basis for the credit computation differs from the property tax liability incurred and paid by the taxpayer for the tax year, the credit for the ensuing year shall be adjusted by the amount of the difference."

Under the Michigan Income Tax Act, MCL 206.512(2), "property taxes" means general ad valorem taxes . . . levied on a homestead within this state including property tax administration fees, but not including special assessments unless assessed in the entire city, village, or township, and based on state equalized value, penalties or interest."

The additional assessed or refunded property taxes attributable to prior years must be claimed in the year the additional taxes are billed or the refunds are issued. Interest received or paid on the adjusted property taxes should not be claimed. Homestead property tax credits will be limited to $1,200.00, in accordance with the Michigan Income Tax Act, MCL 206.522.

Example 1

Taxpayer X has household income (HHI) of $15,000.00 and property taxes of $2,000.00 for the 1989 tax year. In 1989, taxpayer X was assessed additional homestead property taxes of $500.00 for the 1987 tax year. The property taxes eligible for the 1989 general homestead property tax credit are calculated as follows: 

Example 2

Taxpayer Y has household income (HHI) of $10,000.00 and property taxes of $1,500.00 for the 1989 tax year. In 1989, the local treasurer issued a refund of $500.00 to taxpayer Y for property taxes that were originally assessed and collected for the 1988 tax year. The property taxes eligible for the 1989 general homestead property tax credit are as follows: 

Example 3

Taxpayer X has household income (HHI) of $15,000.00 and property taxes of $2,500 for the 1989 tax year. In 1989, taxpayer X was assessed additional homestead property taxes of $500.00 for the 1987 tax year. The property taxes eligible for the 1989 general homestead property tax credit are calculated as follows:
 

Property taxes on your home ($2,500 + $500)		$3,000.00
Amount not refundable (3.5% of HHI)		- 525.00
Property taxes eligible for credit on 1989 MI-1040CR		$2,475.00

Taxpayer X's homestead property tax credit is $1,200.00 (the smaller of 60% of $2,475.00 which is $1,485.00 or $1,200.00) for the 1989 tax year.

Example 4

Taxpayer Z has household income (HHI) of $10,000.00 and property taxes of $1,000.00 for the 1989 tax year. In 1989, the local treasurer issued a refund of $800.00 to taxpayer Z for property taxes that were originally assessed and collected for the 1986 tax year. The property taxes eligible for the 1989 general homestead property tax credit are calculated below: