When Mom or Dad passes and leaves you the family home, one of the first surprises can be the property tax bill. In Michigan, a house that changes hands can have its taxable value "uncapped" and reset toward market value the next year. For a home owned for decades, that can mean the tax bill doubles or more. The good news: since the end of 2014, Michigan has exempted many family transfers of homes from uncapping. This guide explains who qualifies, the one rule that trips up heirs, and the single form you need to file.
The 30-Second Answer
- If you inherit a residential home from your parent, grandparent, brother, or sister (or your spouse's), the taxable value usually does not uncap.
- The house must stay residential and not be used for a commercial purpose after the transfer. Renting it out can count as commercial use.
- Nieces, nephews, cousins, aunts, uncles, friends, and great-grandchildren do not qualify. For them, the taxable value uncaps.
- You claim the exemption on the Property Transfer Affidavit (Form 2766), filed with the local assessor within 45 days of the transfer.
What "Uncapping" Means
Under Michigan's Proposal A, your home's taxable value (what your tax bill is based on) can only rise by inflation or 5% a year, whichever is less, while you own it. Over 20 or 30 years, the taxable value can fall far below the home's real market value.
When there is a "transfer of ownership," the cap comes off. The following year, taxable value resets to the home's state equalized value (roughly half of market value). According to Michigan Treasury, a transfer of ownership includes the conveyance of a deceased person's property through a will, a trust, or intestate succession, unless a specific exemption applies.
Here is a simple example. Say your parents' home in Macomb County has a taxable value of $60,000 but a state equalized value of $140,000. If it uncaps, the next year's tax bill is based on $140,000 instead of $60,000. At a typical 40-mill rate for a non-homestead, that's the difference between roughly $2,400 and $5,600 a year.
Which Relatives Qualify
The family exemption is in MCL 211.27a(7)(u). According to the Property Transfer Affidavit form, beginning December 31, 2014, a transfer of residential real property is not a transfer of ownership if the person receiving it is the transferor's, or the transferor's spouse's:
- Mother or father
- Brother or sister
- Son or daughter (including adopted son or daughter)
- Grandson or granddaughter
Notice who is missing: nieces, nephews, cousins, aunts, uncles, great-grandchildren, unmarried partners, and friends. If you leave your home to a niece, expect the taxable value to uncap.
A few helpful details from Treasury's Transfer of Ownership Guidelines:
- The exemption is not limited to a homestead. A cottage classified as residential can qualify too.
- It does not depend on the heir moving in or on a principal residence exemption.
- It is not limited by how many residential parcels you own.
Transfers to a surviving spouse are exempt under a separate rule, so a spouse inheriting the home is also protected.
The Rental Trap
This is where heirs get caught. The exemption only holds if the home "is not used for any commercial purpose following the conveyance." Treasury's guidelines define commercial purpose as use in connection with any business or undertaking intended for profit, but it excludes renting the home for less than 15 days in a calendar year.
Treasury gives this exact example: grandparents transfer a home to their grandson, who rents it to a friend for 20 days. That rental is a commercial use, and the taxable value uncaps for the following tax year.
What this means in practice:
- Living in the inherited house, letting a family member live there, or leaving it vacant while you decide what to do is fine.
- A short weekend rental under 15 days a year is fine.
- Turning it into a year-round rental or a regular Airbnb will likely uncap the value. Talk to your local assessor, in writing, before you list it.
How to Claim the Exemption
The exemption is not automatic. You have to tell the assessor.
- Get Form 2766 (Property Transfer Affidavit). It is free on the Michigan Treasury website.
- Fill in the property and transfer information. Use the parcel number from the tax bill.
- Check the family-member exemption box. The form asks you to describe the relationship from each transferor to each transferee (for example, "Transferor is mother of Transferee").
- If the home passed through a Lady Bird deed or life estate, the form has a separate box for a transfer of property after the end of a life estate retained by the transferor (MCL 211.27a(7)(d)). Check that one.
- File it with the city or township assessor, not the county, within 45 days of the transfer. Late filing can trigger a penalty.
- Keep a copy and watch next year's assessment notice to confirm taxable value did not jump. If it did, you can appeal to the March Board of Review.
Planning Ahead: Lady Bird Deeds and Trusts
If you are the parent planning ahead, you can make this easier for your kids.
Lady Bird deed. Signing a Lady Bird deed does not change ownership during your life, so nothing uncaps when you sign it. At death the home passes to your named beneficiaries outside probate, and if they are qualifying relatives, they claim the life-estate or family exemption on Form 2766. See our Lady Bird deed guide and recording guide.
Revocable living trust. Transferring your home into your own revocable trust, where you are the sole beneficiary, is listed as an exempt transfer on Form 2766. At death, distribution to qualifying family can use the family exemption. See how to fund a Michigan living trust.
Choose beneficiaries with taxes in mind. If you are leaving the home to a niece, nephew, or friend, they will likely face uncapping. That may be fine, but tell them so they can budget, or consider leaving that person other assets instead.
Avoid the shortcut of quitclaiming the house to your kids while you're alive. It creates other problems, including loss of the stepped-up basis and Medicaid look-back issues. See Lady Bird deed vs quitclaim.
Don't Forget the Principal Residence Exemption
Uncapping and the Principal Residence Exemption (PRE, sometimes called the homestead exemption) are two different things. The PRE exempts your home from up to 18 mills of school operating taxes, but only for the owner who actually lives there as their principal residence.
- If you move into the inherited home, file your own PRE claim (Form 2368) with the local assessor.
- If you do not move in, the home loses the PRE, and the tax bill will go up by the school operating millage even if taxable value stays capped.
For details, see Treasury's PRE guidelines.
Frequently Asked Questions
I inherited my parents' house with my brother. Does it still qualify?
Yes, if each of you is a qualifying relative of the parent (sons and daughters are) and the home is not used commercially. List each relationship on the affidavit.
Does the exemption apply if the house went through probate?
Yes. The exemption depends on the relationship and the use of the property, not how the home passed. File Form 2766 when the personal representative deeds the home to you.
What if I sell the inherited house?
A sale to an unrelated buyer is a normal transfer, and the taxable value uncaps for the buyer. That is the buyer's concern, not yours.
My grandmother left me her cottage. Does it count?
Grandchildren qualify, and the exemption is not limited to homesteads, so a residential cottage can qualify as long as it is not rented out commercially.
Is this the same as the cottage law for family cottages?
They overlap. For more on keeping a cottage in the family, see our Michigan cottage trust guide.
Plan the Transfer Now, Save Your Family the Guesswork
The easiest way to make sure your home passes smoothly, avoids probate, and keeps its capped taxable value for your children is to plan it now. The CreateMIWill Trust Kit ($197) and Complete Bundle ($349) include an attorney-drafted Michigan Lady Bird deed template and revocable living trust with plain-English instructions. The $89 Will Kit covers your will, powers of attorney, and healthcare documents but does not include the Lady Bird deed template.
Keep the Family Home Out of Probate
Attorney-drafted Michigan Lady Bird deed template and revocable living trust, with signing and recording instructions. Instant download.
Sources: Michigan Form 2766, Property Transfer Affidavit; Michigan Treasury Transfer of Ownership Guidelines; Michigan Treasury, Changes in Ownership and Uncapping.