Q: I read your column from Sunday, February 26th and you got one thing wrong. Lower income taxpayers should provide their tax preparers with the amount of property tax levied as well as the taxable value of their home. This information is needed to apply for the Homestead Property Tax Credit on Form 1040-CR. In addition, lower income renters can benefit from this property tax credit, too!
A: Actually, I got two things wrong in that column! I incorrectly stated that the 2022 standard deduction for those married filing jointly was $27,700. That’s for 2023, not 2022. The standard deduction for married filers in 2022 is only $25,900.
With my conscience now clear, let’s go through the details of the Michigan Homestead Property Tax Credit. First, I’ll address homeowners and then move on to renters.
For homeowners: If your income falls below $63,000 and the taxable value of your homestead is less than $143,000, you qualify for a potential tax credit. Note, the taxable value of your home is not what your home is worth today. Your taxable value is what’s shown on your property tax statements. You can also look it up online.
The Homestead Property Tax Credit generally works like this. Let’s say your income was $50,000 and you paid $3,000 in property taxes. First, multiply $50,000 times 3.2%. This sets a threshold of $1,600. In this case, your $3,000 in property taxes exceeds this $1,600 threshold by $1,400. To figure your tax credit, you multiply $1,400 by 60%. Your property tax credit amounts to $840. Better yet, even if you happened to pay zero state income tax, the State of Michigan will still send you a tax refund check for the $840!
For renters: The same income test above applies for renters, too. But, since you don’t own a home, you instead use your annual rent expense to figure your tax credit. Multiply your annual rent expense by 23% and then compare it to your 3.2% of income threshold. Just like a homeowner, you are entitled to receive 60% of the difference as a tax credit.
Keep in mind, the maximum Homestead Property Tax Credit you can get is $1,600. And, one final tip, if you overlooked the Homestead Property Tax Credit in the past, the State of Michigan allows for you to go back a whopping four tax years to get your tax credit. Go take a look in your tax files. It might amount to some real money!