Tax Season Prep: Real Estate Deductions You Might Not Know About in Michigan

As we begin 2025, it’s the perfect time to start preparing for tax season. Understanding what real estate deductions and credits that are available to you can help reduce your taxable income and save you money. Whether you're a homeowner, seller, buyer, or real estate investor in Michigan, several state-specific programs and federal tax opportunities can benefit you. In the information below, we'll walk through some of the key real estate-related tax benefits you may be eligible for.

Michigan’s Homestead Property Tax Credit

In Michigan, one of the most beneficial tax credits available is the Homestead Property Tax Credit. This credit reimburses homeowners and renters for a portion of their property taxes based on income, household resources, and taxable value. To qualify, you must own or rent a homestead (your primary residence) in Michigan, and your total household resources must be below certain thresholds. For example, homeowners and renters qualify if their household resources are $67,300 or less, and the taxable value of the home must be $154,000 or less. The credit can be as high as $1,700, depending on your income and the amount of property tax you’ve paid. This credit is particularly valuable for those who face higher property taxes relative to their income.

Principal Residence Exemption (PRE)

Another key benefit for Michigan homeowners is the Principal Residence Exemption (PRE). The PRE exempts homeowners from 18 mills of school operating taxes, which can lead to significant savings on your annual property tax bill. To qualify, you must live in the home as your primary residence and file the PRE with your local assessor’s office. If approved, you’ll be exempt from a portion of your property taxes, which can make a meaningful difference in your financial planning.

Disabled Veterans Property Tax Exemption

Michigan offers a property tax exemption for disabled veterans and their surviving spouses. Veterans with a 100% service-connected disability, as rated by the U.S. Department of Veterans Affairs, or their surviving spouses, may qualify for this exemption. To take advantage of this benefit, the property must be owned and used as the veteran’s or surviving spouse's primary residence. This exemption helps reduce the tax burden for those who have served our country and provides significant financial relief.

Summer Property Tax Deferment

In addition to exemptions and credits, Michigan offers the Summer Property Tax Deferment program for seniors, veterans, disabled individuals, and farmers. This program allows eligible homeowners to defer their summer property taxes until the winter tax bill is due. To apply for the deferment, you must meet the program’s eligibility criteria and submit the deferment application to your local city or township treasurer by September 15th each year. This option can help alleviate the immediate financial burden of paying taxes, providing more flexibility in managing your finances.

Federal Tax Deductions and Benefits

In addition to Michigan’s state-specific programs, several federal tax deductions can benefit homeowners. One of the most significant federal deductions is the mortgage interest deduction. Homeowners can deduct the interest paid on their mortgage for their primary residence, which can significantly reduce taxable income, especially during the early years of a mortgage when a large portion of your payment goes toward interest. This deduction is a key benefit for many homeowners looking to maximize tax savings.

Similarly, property taxes paid on your primary residence are deductible under the State and Local Taxes (SALT) deduction, which allows homeowners to deduct up to $10,000 in property taxes. However, keep in mind that this deduction is subject to a cap. Additionally, homeowners who use part of their home for business may qualify for the home office deduction. This deduction is available to self-employed individuals as well as employees working remotely, provided the space is used exclusively for business purposes.

Energy-Efficient Home Improvements

Energy-efficient home improvements are another area where you can receive both state and federal tax benefits. While Michigan does not offer state-specific incentives for energy-efficient upgrades, homeowners can still benefit from federal tax credits for improvements such as installing solar panels, solar water heaters, or geothermal heat pumps. These credits can cover up to 30% of the cost of these improvements, making it more affordable to make eco-friendly upgrades that also reduce your energy bills.

How These Tax Benefits Impact Sellers, Buyers, and Investors

For Sellers

Sellers can benefit from these tax deductions when preparing their homes for sale. For example, if you’ve made energy-efficient upgrades to your home, you may be able to claim a federal tax credit for those improvements. Sellers can also plan strategically around the Principal Residence Exemption (PRE), which reduces the tax burden on those who have lived in the home as their primary residence. Additionally, if you’re selling your home and have paid property taxes in advance, those taxes can be prorated, providing potential savings during the transaction. Understanding available exemptions or deferments like the Summer Property Tax Deferment program can also help sellers plan their move more efficiently, especially if they are facing financial constraints.

For Buyers

For buyers, tax season presents an opportunity to reduce the cost of purchasing a new home. Buyers may qualify for federal deductions, such as the mortgage interest deduction and property tax deductions, which can ease the financial burden after purchasing a home. Understanding Michigan’s Homestead Property Tax Credit can also help buyers assess long-term costs for property ownership. When buying a home in Michigan, be sure to consider the potential benefits of the Principal Residence Exemption, which can significantly reduce property taxes on your new home once you establish it as your primary residence. Additionally, buyers who purchase energy-efficient homes can potentially benefit from federal energy-efficient credits.

For Investors

Real estate investors have the unique advantage of leveraging tax deductions that can reduce taxable income. Deductions for mortgage interest and property taxes on rental properties can provide valuable tax savings. Investors should also consider home office deductions if they use part of their rental property for business purposes. While Michigan doesn’t offer specific incentives for real estate investors, the federal energy-efficient credits available for upgrades to rental properties can provide significant savings. Additionally, understanding the potential property tax exemptions or deferments can help investors better manage operating costs and make more informed investment decisions.

Important Tips for Tax Season Success in Michigan

As you prepare for tax season, it's important to keep detailed records of all property taxes paid, mortgage interest, energy-efficient improvements, and any maintenance or repairs performed on your home or investment properties. These records will support your claims for deductions and credits. It’s also highly recommended to consult with a tax professional, especially if you’re unfamiliar with tax laws or have a complex real estate situation. A tax professional can ensure that you’re taking full advantage of the credits and deductions available to you and help you navigate any changes in tax laws for 2025.

Conclusion

In conclusion, tax season doesn’t have to be overwhelming. With a little preparation, you can take advantage of the various real estate-related tax benefits available in Michigan. Whether you’re claiming the Homestead Property Tax Credit, taking advantage of the Principal Residence Exemption, or benefiting from federal deductions like mortgage interest or energy-efficient credits, there are many ways to reduce your tax liability. Sellers, buyers, and investors alike can benefit from these deductions to maximize savings and plan strategically for the year ahead. By staying informed and seeking professional guidance, you can make the most of these opportunities and start 2025 on the right foot. Looking for a tax professional but not sure where to start? Contact us at 616.437.0559 or ginger@gingerbaxter.com and we can get you in contact with one of our preferred partners.