By Jonathan L. Kirkland, Abbott Nicholson PC
Practitioners should advise their clients to proceed with caution when transferring property to related business entities.
In Alli v. Department of Treasury, (Mich App No. 333915, October 10, 2017, unpublished) the Michigan Court of Appeals held that “the definition of an owner eligible for a personal residence exemption under MCL 211.7cc does not include business entities.”
The ruling prevented a limited partnership from claiming a personal residence tax exemption. See also VanderWerp v. Plainfield Charter Twp., 278 Mich App 624, 629; 752 NW2d 479 (2008) holding that a limited liability company was not eligible for the homestead exemption because it was not an individual.
The Alli court reasoned that the limited partnership “was not an individual and, thus not an owner” eligible for a personal residence exemption. Under MCL 211.7cc(1), “a tax exemption is available to the owner of a principal residence.” The court stated, “MCL 211.7dd(a)(i) defines an owner as a ‘person who owns property or who is purchasing property under a land contract.’ As it relates to section 7cc, a person is ‘an individual[,]’ MCL 211.7dd(b), i.e., ‘a single human being’” (quoting VanderWerp, 278 Mich. App. at 630 n 3, quoting Random House Webster's College Dictionary (2001)). Therefore, “the definition of an owner eligible for a personal residence exemption under section 7cc does not include business entities.”
Practitioners should advise clients they will be ineligible for the personal residence tax exemption if they transfer ownership interest of a primary residence to a business entity. The court’s reasoning may also prevent eligibility if the client transfers ownership of a primary residence to a revocable trust or qualified personal residence trust if the client is not the grantor of the trust. MCL 211.7dd(a)(vi).