April 19, 2025

Has The Michigan Homestead Exemption Changed?

Homestead Exemption Changes

Michigan passed House Bill 4901 (HB-4901) to modernize bankruptcy exemptions, increasing limits for homesteads, motor vehicles, and tools of the trade while adding protections.

The 2023 Homestead Property Tax Credit (HPTC) raised eligibility limits, credit amounts, and taxable value thresholds, offering residents greater financial relief.

Passage of Michigan Bankruptcy Exemption Bill HB-4901

The National Association of Consumer Bankruptcy Attorneys (NACBA) announced the passage of Michigan’s House Bill 4901 (HB-4901) in the State Senate with a 21-17 vote after a 29-hour session.

The bill introduced significant updates to the state’s outdated exemption laws, last revised over 20 years ago.

Key Updates:

Homestead Exemption: Increased to $125,000 per debtor in joint cases or $200,000 for disabled or senior citizens.
Motor Vehicle Exemption: Raised to $15,000 per debtor in joint cases.
Tools of the Trade: Expanded to $10,000 per debtor in joint cases.
Crime Victim Payments: New exemption introduced.
Inflation Adjustment: Triennial updates are available for all exemptions.

Krista D’Amelio, NACBA Director of Government Affairs & Communications, called the reforms “a monumental shift,” ensuring Michigan families retain essential assets to rebuild their lives. [1] NACBA also recognized members Matt Mason, Kurt O’Keefe, and Alexander Berry-Santoro for their advocacy efforts.

The reforms protect retirees, widows, and those facing unexpected financial crises, addressing gaps that previously left Michigan families among the most vulnerable in the nation.

The Homestead Property Tax Credit Changes

The HPTC is a refundable credit aimed at helping eligible Michigan residents, both homeowners and renters, manage their property tax burdens. The credit is calculated based on a combination of factors, including the claimant’s total household resources and the taxable value of their homestead.

Key Changes Made in the 2023 Tax Year

Several significant adjustments were made to the HPTC during the 2023 tax year: [2]

1. Personal Exemption & Special Exemption Restrictions

Disabled Exemption Age Restriction: Taxpayers who are totally and permanently disabled cannot claim the special exemption if they were age 66 or older by June 30, 2023.
New Stillbirth Exemption: A $5,400 exemption is available for taxpayers with certificates of stillbirth issued by the Michigan Department of Health and Human Services (MDHHS).

2. Retirement & Pension Deductions

Michigan’s tiered pension deduction system now includes stricter phase-outs and new eligibility criteria:

Born After 1956: No pension deduction is allowed (Tier 3), except for specific government pensions not covered by Social Security.
Phase-In Subtraction (1946–1958 Birth Years):

Single filers: Up to $15,380 (25% of the private pension limit).
Joint filers: Up to $30,759 (25% of the private pension limit)

Public Safety Retirees (Fire/Police/Corrections):

No age requirement for deductions, but distributions must be “qualified.”
Private pension limits: 61,518 (single) / 123,036 (joint). Public pensions remain unlimited.

3. Homestead Property Tax Credit Adjustments

Maximum Taxable Value: Increased to $154,400.
Total Household Resources (THR) Limits:

Credit phases out starting at $58,300 (up from prior years).
Full credit is eliminated once THR exceeds $67,300.

Maximum Credit: Capped at $1,700.

4. Home Heating Credit Updates

New Heat Provider: Wesco, Inc. is now designated as the provider for calculating heating costs.
Standard Allowance Increases:

Example: For 0-1 exemptions, the standard allowance is $562 to the income ceiling (income ceiling is $16,043).
Each additional exemption adds $198 to the allowance and $5,657 to the income ceiling.

Alternate Credit Income Ceilings: Increased for all categories (e.g., $17,534 for 0-1 exemptions).

5. Disabled Veteran Deduction

A new $400 deduction is available for qualified disabled veterans.

6. Key Notes for Retirees

Surviving spouses receiving retirement benefits from a deceased partner must refer to the MI-1040 instructions for eligibility rules under the tiered system.
Public pensions (e.g., government or military) remain fully deductible, while private pensions face stricter limits based on birth year.