Better to close escrow on Jan 2 than Dec. 31st for taxes? (Michigan, sell)

[Podo944]

Hi there...

Trying to educate ourselves here...
We're renters and recently got approval for a home loan.
There's a property we're going to be putting an offer on, and it's a short sale. It could go quickly or slowly depending on the bank of course.

I was told by someone that if we closed after the 1st the year it would benefit us more from a tax perspective. Something about itemiting? He kind of lost me there.

He said realtors prefer to get a deal done before the year? Wouldn't know why... can anyone enlighten me please?

Thank you very much!

[TurtleCreek80]

It's usually best to close by the end of the year for property tax reasons. Many states offer tax breaks (homestead exemptions) which lower your property tax bill for every full year you're in the house. You'd need to be in by 12-31 to qualify for full benefits the following calendar year.

But that's a moot point since it's virtually impossible to close on a short sale in less than 60 days!! Whether your realtor wants to close by the end of the year is irrelevant since the bank drives the short sale process, not you or your realtor.

[freemkt]

Depends on the state/local rules for homestead exemption etc (what TurtleCreek said).

In Michigan, Jan 1 is a very important date because it determines the existence or lack thereof of a homestead exemption for the entire year.

In Michigan, the (annual) homestead exemption or lack thereof transfers from a seller to a buyer, so if the home you're buying has a 2011 homestead exemption and is vacant now, you need to close by Dec 31 in order to qualify for a 2012 homestead exemption.

If the home is currently occupied as the seller's primary residence, it's okay to close in January (or later) as long as it's still the seller's primary residence on Jan 1, because then the seller gets a 2012 homestead exemption which you 'inherit' when you close on the house.

In Michigan, a homestead exemption saves a homeowner 18 mills of property tax, which works out to about one-third off the total property tax on an urban non-homestead property.

Is this a great country or what?