Michigan Property Tax When a Parent Moves to Assisted Living: Keeping the PRE, the Homestead Credit, and What to Know Before Selling the Home

When a Michigan parent moves into adult foster care, a nursing home, or assisted living, families face a question that is mostly invisible until they're in it: what happens to the property tax bill on the home your parent still owns?

For most families, the home is still there. They visit it on weekends. They pay the mortgage if there is one. They keep the lights on, the water running, the snow shoveled in winter. They mean to sell it eventually but they aren't ready yet: too much grief, too much paperwork, too many things to sort through. Months go by. Sometimes years.

What many families don't realize is that the home can keep its Principal Residence Exemption (PRE) during that period, often for many years, as long as a few conditions are met. The PRE saves thousands of dollars a year in property taxes by exempting eighteen mills of the local school operating tax, which adds up fast in southeast Michigan. And there's a separate Michigan Homestead Property Tax Credit that some senior homeowners qualify for, which can return up to $1,900 a year on the state tax return.

These savings are not trivial. Together they can be the difference between holding onto the family home affordably while a parent is in care, and feeling forced to sell before the family is ready. Here is how each piece works, what families miss, and what to talk through with a tax professional.

What the Principal Residence Exemption Does

In Michigan, every homeowner is subject to property taxes calculated on the home's taxable value. Those taxes fund schools, local government, and other public services. The Principal Residence Exemption (often called the PRE, or in older documents the "Homestead Exemption") exempts a primary residence from up to eighteen mills of the local school operating tax.

In practice, the PRE removes eighteen mills of school operating tax, a meaningful share of a Michigan property tax bill. On a Troy home with a taxable value of $150,000, that is roughly $2,700 a year (eighteen mills times $150,000), every year.

A homeowner can only have one PRE at a time on a Michigan home they own and occupy as a primary residence. The exemption is filed with the local assessor when the home is purchased or first used as a principal residence, and it stays in place automatically until something changes.

The question, when a parent moves to assisted living: does the PRE end the moment they move out?

The short answer is no. There's a Michigan law specifically written for this situation.

The 2012 Amendment That Made This Possible

In 2012, the Michigan Legislature amended MCL 211.7cc, the statute that governs the PRE, to allow homeowners who move into a nursing home, assisted living facility, or adult foster care home to retain their PRE on the home they previously occupied.

This was an important change. Before the amendment, the PRE technically ended when the homeowner stopped occupying the home as a primary residence. Many families found themselves losing the exemption, and paying significantly higher property taxes, exactly at the moment they could least afford it, when a parent had just moved into long-term care.

The amendment recognized that for many Michigan seniors, the move into care doesn't necessarily mean a permanent decision to sell the home. Some intend to return if their condition improves. Some plan to keep the home in the family. Some are simply not ready, emotionally or practically, to sell.

Under the current law, a homeowner who has moved into a long-term care setting can keep the PRE on their former home if they meet four conditions.

The Four Conditions

The four conditions under MCL 211.7cc(5) are:

1. Continue to own the property. The home must remain titled in the owner's name, or in a qualifying trust or other legal arrangement. If the home is transferred to an adult child or sold, the PRE ends.

2. Not establish a new principal residence. The owner cannot claim a PRE on a different Michigan property. For most adult foster care and assisted living residents, this isn't an issue, because the room they live in isn't their property. But families who own a second home (a cottage up north, a condo in Florida) need to be careful not to file a PRE on the second property if they intend to keep it on the original home.

3. Maintain the property. The home must be kept in livable condition. Mortgage paid (if there is one), utilities active, lawn mowed, snow cleared, repairs handled. The property must remain in a state that suggests the owner intends to return.

4. Not lease it or use it for business. Renting the home out to a tenant, even a family member, ends the PRE. Using it as an Airbnb or short-term rental ends the PRE. Using it for a business ends the PRE. The home must sit as a residence.

If all four conditions are met, the PRE continues. There is no time limit in the statute. A parent can be in adult foster care for ten years, and as long as the family meets the four conditions, the PRE remains in place.

What "Intent to Return" Really Means

The statute uses the phrase "intent to return." In practice, most assessors interpret this broadly. A parent with advanced dementia is not literally going to return to live in the home, and the law does not require literal intent. What it requires is that the family treat the property as if return were possible: maintaining it, keeping it titled in the parent's name, and not establishing a new principal residence elsewhere.

If the family decides at some point to formally sell the home, the PRE ends at the point the home is sold or rented out. The family does not need to immediately rescind the exemption when the parent moves into care. The exemption continues until something changes.

The Homestead Property Tax Credit Is Different

Separate from the PRE, and often confused with it, is the Michigan Homestead Property Tax Credit. This is a state income tax credit, not a property tax exemption, and it works differently.

The Homestead Credit is claimed on Form MI-1040CR as part of the state income tax return. It's available to homeowners (and some renters) whose household resources fall below a certain threshold and whose property taxes exceed a certain percentage of those resources.

For the 2025 tax year (the return most families are filing in 2026), the limits are:

• Total household resources of $71,500 or less to qualify
• Taxable value of the home must be $165,400 or less
• Maximum credit: $1,900 (higher amounts apply for seniors, disabled persons, and veterans)
• Must have owned and occupied a Michigan homestead for at least six months during the tax year

A parent who moves into assisted living mid-year often still qualifies for the Homestead Credit for that tax year, because they occupied the home for at least six months. And if they qualify in subsequent years, when the home continues to be their listed homestead and they meet the income threshold, the credit can continue.

This credit is often missed. Tax software handles it automatically, but many seniors who file simple returns or have a family member handle their taxes don't realize they qualify. Worth a careful look at your parent's MI-1040CR each year.

What Happens When the Home Is Listed for Sale

At some point, most families do sell the home. When the home goes on the market, a slightly different set of rules can apply.

If the owner has moved into long-term care but is still alive and the home is being sold (listed, not yet sold), the PRE can continue for up to three years from the date a new principal residence is established, through what's called a Conditional Rescission. This is filed with the local assessor on Form 4640.

The Conditional Rescission must be filed by June 1 or November 1 of the first year of the claim, and re-filed by December 31 each year thereafter. The same conditions apply: the home must not be occupied, not leased, not used for business, and actively listed for sale.

For an adult foster care or nursing home resident who has not established a new principal residence (because the adult foster care room isn't a residence the parent owns), the original PRE under MCL 211.7cc(5) may simply continue without needing a Conditional Rescission. The four conditions are what matter.

When the home eventually sells, the PRE ends at the sale date. The new owner's PRE status is their problem to file.

Capital Gains When the Home Is Sold

Property tax is one piece. Capital gains tax is another, and it sometimes catches families by surprise.

When a home is sold, the IRS treats the difference between the sale price and the original purchase price (adjusted for improvements) as a capital gain. For a home owned for decades, that gain can be very large. A modest Troy home purchased for $40,000 in 1985 and sold for $350,000 in 2026 has $310,000 of capital gain before adjustments.

For a primary residence, the IRS allows a Section 121 exclusion: up to $250,000 of gain for a single filer, or $500,000 for a married couple filing jointly, can be excluded from federal capital gains tax. To qualify, the seller must have owned and used the home as a primary residence for at least two of the five years immediately before the sale.

This rule can become tricky when a parent has moved to adult foster care several years ago. If the parent has not lived in the home for more than three years out of the last five, they may no longer qualify for the Section 121 exclusion. The capital gain on sale then becomes fully taxable at federal capital gains rates (typically 15% or 20%, plus Michigan's 4.25% state income tax).

There are some workarounds. If a parent moved into a "qualified care facility" (and Michigan adult foster care typically qualifies), the use period extends to the period before moving in. The rule was specifically written for this kind of situation. But the calculation depends on dates and documentation, and getting it right matters when the gain is large.

The other important rule: when a home passes through a Lady Bird Deed, will, or trust at death, the beneficiaries receive a "step-up in basis": the home's tax basis becomes its market value at the date of death, eliminating the capital gain for federal tax purposes. For families whose parent has a home with a large gain, selling before death and selling after death can be very different transactions.

This is why families with significant home equity should talk with a CPA before the sale. The savings, properly handled, can be substantial.

The Caregiver Child Exemption

One more thing worth knowing, especially for families whose parent will eventually apply for Medicaid: the Caregiver Child Exemption.

Under federal Medicaid rules, an adult child who has lived in the parent's home for at least two years before the parent moves to a nursing home or adult foster care, and who provided care that delayed the parent's need for institutional care, may receive transfer of the home without it triggering the Medicaid five-year look-back penalty.

This is a powerful exemption. It's also a specific one, and the rules around who qualifies, what documentation is needed, and how to handle the transfer require care. Don't try to do this from a YouTube video. A Michigan elder law attorney can structure it properly.

What to Tell Your Tax Preparer

When a parent moves to assisted living, the family's tax situation often changes in ways that aren't obvious. Bring these items to your parent's tax preparer (or your own, if you're handling your parent's return):

• The fact that the parent has moved to a long-term care facility
• The exact date of the move
• Whether the home is still owned, sold, listed for sale, or rented
• Whether the parent established any new residence
• Any large gifts or transfers in the past five years
• The cost basis of the home (original purchase price plus improvements)
• Whether any Lady Bird Deed, trust, or other estate planning instrument is in place

A tax preparer who knows about Michigan-specific rules (the 2012 PRE amendment, the Homestead Credit thresholds, the Caregiver Child Exemption) can save a family thousands of dollars on the parent's annual returns. A tax preparer who doesn't know about them can miss the credit, or worse, advise actions that cost the family money.

A Final Thought

The property tax rules for a parent who has moved to assisted living or adult foster care are not intuitive, and they're not the kind of thing the assisted living home itself can advise on. The home knows about care. The local assessor knows the property tax rules. The tax preparer knows the income tax rules. The elder law attorney knows the Medicaid and estate rules. They don't always talk to each other.

For a family in Troy or anywhere in Oakland County, the path forward is straightforward enough. Confirm with the local assessor that the PRE remains in place. File the Homestead Credit on the annual MI-1040CR if your parent qualifies. Talk to a CPA before any sale of the home, especially if the gain is significant. And don't make estate or transfer decisions without an elder law attorney who knows Michigan rules.

The savings, handled carefully, can run into thousands of dollars a year. That money, in most families, ends up paying for care.