Michigan Home Heating Credit Tax Claim

[frugalnacho]

I'm doing my sister's taxes using turbo tax, and i'm confused about the michigan home heating credit.  I answered the questions in turbo tax, and she qualifies for the credit.  However when I look at the michigan tax forms i'm fairly certain she is not eligible. 

Background: I own 2 houses in michigan. I live in one (which is homesteaded) and I rent the other (not homesteaded) to my immediate family (mom, dad, 2 sisters).

The questions on turbotax state:

-Your home is in Michigan (permanent home, the place you plan to return to whenever you go away)
-You own or rent and resided in a Michigan home on which property taxes were paid

Which they seem to qualify for.  It's as permanent of a home as they can have, and they return to it when they go away, because they live there.  They rent, and they reside in it, and I paid property taxes.  The next question asks about weird sources of income (none of which apply), and the last asks about medical insurance premiums.

But the state of michigan website says this:

http://www.michigan.gov/taxes/0,4676,7-238-43513_66852-330928--,00.html

Who may file a Home Heating Credit Claim?

You may claim a home heating credit if all of the following apply:

    You occupy a Michigan homestead
    You own your home or are contracted to pay rent
    You were NOT a full time student who was claimed as a dependent on another person’s return
    You did NOT live in college or university operated housing for the entire year
    You did NOT live in a licensed care facility for the entire year
    Your income is within the income limits in tables A and B here.

...

What is a "Homestead"?

Your homestead is the place where you have your permanent home. It is the place to which you plan to return whenever you go away. You must be the owner and occupant or be contracted to pay rent and occupy the dwelling. You can only have one homestead at a time. Cottages, second homes and property you own and rent/lease to others does not qualify as a homestead.

Note: College or university operated housing does not qualify as a homestead. This includes dormitories, residence halls and/or apartments.

What are Total Household Resources?

Total household resources include all income received by all household members during the year, including income that might be exempt from federal adjusted gross income. Losses from business activity may not be used to reduce total household resources.

Which is totally confusing to me.  It is not a homesteaded house (it's my second house and I can only have one homestead) so they for sure don't qualify according to the state of michigan.  Or does it count as their homestead, even though the property is in my name and is counted as a non-homestead for me?  The last paragraph about the homestead seems pretty black and white that second homes rented to others are not homesteads though.

What's up with turbotax's weird wording? Does the word home literally only apply to homesteaded properties? That seems pretty ambiguous if it does, and I imagine a lot of people are going to claim the credit when they don't qualify.  It also seems like it would disqualify nearly all renters, unless they are living in the homesteaded house with the owner while paying rent.  But it seems like those people are less in need of a heating tax credit than people renting rental (ie non-homesteaded) houses.  Homesteaded houses already get property tax breaks by virtue of being homesteaded, so why the additional heating credit breaks, and why not on non homesteaded properties?

It also says the credit is based on total house hold resources, but turbotax only asked those 3 questions I posted, and literally nothing about the rest of the household's income (which has 3 other people earning income and filing their own taxes separately).

[MDM]

Cottages, second homes and property you own and rent/lease to others does not qualify as a homestead.

Which is totally confusing to me.  It is not a homesteaded house (it's my second house and I can only have one homestead) so they for sure don't qualify according to the state of michigan.  Or does it count as their homestead, even though the property is in my name and is counted as a non-homestead for me?  The last paragraph about the homestead seems pretty black and white that second homes rented to others are not homesteads though.

Yes, it counts as their homestead, not yours.

If the description was "property you ... rent ... [from] others does not qualify" then it would not count for them.

What are Total Household Resources?

Total household resources include all income received by all household members during the year, including income that might be exempt from federal adjusted gross income. Losses from business activity may not be used to reduce total household resources.

It also says the credit is based on total house hold resources, but turbotax only asked those 3 questions I posted, and literally nothing about the rest of the household's income (which has 3 other people earning income and filing their own taxes separately).

This gets more complicated.  Do the 3 other people contribute to the rent or other expenses?  If not, things are simple again - you may ignore those 3 people.  If so, see http://www.michigan.gov/taxes/0,4676,7-238-43513_66852-330928--,00.html and http://michigan.gov/documents/taxes/ChecklistDetermineTHR_444822_7.pdf.

[frugalnacho]

This gets more complicated.  Do the 3 other people contribute to the rent or other expenses?  If not, things are simple again - you may ignore those 3 people.  If so, see http://www.michigan.gov/taxes/0,4676,7-238-43513_66852-330928--,00.html and http://michigan.gov/documents/taxes/ChecklistDetermineTHR_444822_7.pdf.

Yes they do.  My dad pays me directly for the full rent, and the heating bill is in his name so he pays the gas company directly.  My sisters give him money towards rent/expenses.  Seems weird that turbotax is not asking about total household resources at all. It also doesn't ask what her share of rent/expenses are either, just if she pays it or not.  The total credit she qualifies for is only $36.

[DavidAnnArbor]

I would think her rent is the amount she pays per month. Therefore it's conceivable your dad may also qualify for the home heating tax credit is his income is low enough.

[frugalnacho]

I would think her rent is the amount she pays per month. Therefore it's conceivable your dad may also qualify for the home heating tax credit is his income is low enough.

It didn't even require any input for what her share is, or what the total household income is.

[MDM]

I would think her rent is the amount she pays per month. Therefore it's conceivable your dad may also qualify for the home heating tax credit is his income is low enough.

It didn't even require any input for what her share is, or what the total household income is.

What was entered on line 26 of the CR-7 form?  If you ask the TT program for help on that line, what does it say?

[frugalnacho]

I would think her rent is the amount she pays per month. Therefore it's conceivable your dad may also qualify for the home heating tax credit is his income is low enough.

It didn't even require any input for what her share is, or what the total household income is.

What was entered on line 26 of the CR-7 form?  If you ask the TT program for help on that line, what does it say?

Nothing.  Line 26 is "Gifts or expenses paid on your behalf".  I don't know how to have TT help with a specific line.  I can either do form mode and fill them out manually, or step-by-step mode.  Since none of the other household income went directly to her (it stayed with the respective earner), I left that portion unchecked and it bypassed it entirely.  It asked if heat was included in her rent, and if the heating bill is in someone else's name.  I answered yes to both questions.  The gas bill is in my dad's name, and he pays for that.  She pays a portion of the rent to him, and he then pays me. 

[MDM]

Nothing.  Line 26 is "Gifts or expenses paid on your behalf".

Yes.  That is what the checklist (link above) asks about:

If you share your dwelling with others who helped pay rent, property taxes and/or other expenses, use the chart below to show their share of expenses. If you have amounts for items D (amount paid towards rent) and/or E (other expenses) below, include them in the section above as “gifts of cash or goods received and all payments made on your behalf by relatives, friends and/or other individuals”.

If the others do not help her pay (emphasis added) "rent, property taxes and/or other expenses" then $0 on line 26 is correct.  If they do help, $0 is not correct.

[frugalnacho]

Nothing.  Line 26 is "Gifts or expenses paid on your behalf".

Yes.  That is what the checklist (link above) asks about:

If you share your dwelling with others who helped pay rent, property taxes and/or other expenses, use the chart below to show their share of expenses. If you have amounts for items D (amount paid towards rent) and/or E (other expenses) below, include them in the section above as “gifts of cash or goods received and all payments made on your behalf by relatives, friends and/or other individuals”.

If the others do not help her pay (emphasis added) "rent, property taxes and/or other expenses" then $0 on line 26 is correct.  If they do help, $0 is not correct.

I'm still not clear on what, if anything, should be entered.  They help in the sense that they pay the heating bill and the remainder of the rent, but they don't pay her directly, and it's not really on her behalf either (they would pay [and did pay] those portions when she was not living there).  It's essentially like she is renting a room in my house for a flat fee.

[MDM]

...they pay the heating bill....  It's essentially like she is renting a room in my house for a flat fee.

At first glance, in that situation, it is difficult to see how she would qualify for the home heating credit.

But if you think of it as renting an apartment in a housing complex, with the heat included as part of the rent, then there may be a legitimate path forward.  E.g., in a senior living complex nobody has to account for the rent everyone else pays to the complex owner - each person merely lists his or her own rent, income, etc.  Seems you and she could do the same here.

[frugalnacho]

...they pay the heating bill....  It's essentially like she is renting a room in my house for a flat fee.

At first glance, in that situation, it is difficult to see how she would qualify for the home heating credit.

But if you think of it as renting an apartment in a housing complex, with the heat included as part of the rent, then there may be a legitimate path forward.  E.g., in a senior living complex nobody has to account for the rent everyone else pays to the complex owner - each person merely lists his or her own rent, income, etc.  Seems you and she could do the same here.

That's pretty much how I interpreted it.  She made less than $9k, and she only qualifies for a $36 home heating credit, so I doubt the state of michigan is going to be overly concerned with the accuracy of her claims anyway.