The State of Michigan offers a refundable Homestead Property Tax Credit of up to $1,200 per year for property taxes you pay on your homestead (principal residence).
Many people who rent their homes or apartments often do not claim the credit since they are paying rent, and not property taxes. However, a portion of the rent paid actually is used to pay property taxes on the home.
The State of Michigan assumes that 20% of rent paid is for property taxes. Therefore, if you pay $900 rent per month ($10,800 per year), 20% of the rent paid is considered payment of property taxes eligible for the property tax credit. In this example, the 20% of rent that is deemed payment of property taxes amounts to $2,160.
Two more complexities:
- you have to reduce the property taxes you paid by 3.5% of your household income. So, let’s say you make $40,000 per year. The $2,160 property taxes you paid is reduced by $1,400 ($40,000 * 3.5%) and this leaves $760 of property taxes eligible for the credit.
- to compute the credit, you multiply the $760 by 60% and the amount of your refundable credit is $456.
- Compute your deemed property taxes by multiplying your rent by 20%
- Reduce your property taxes paid by 3.5% of your household income
- Reduce the product computed in Step 2 by 60%
- Deposit your refund check
This posting contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.