When shopping for a second home in Michigan, it is important to understand how property taxes are calculated. The property taxes that you see listed in the MLS are not the property taxes that you will pay in the year following purchase. In order to understand how your property taxes are estimated it is important to understand a few key terms:
Assessed Value: The assessed value is determined by a property’s market value. The assessed value is determined by the assessor and, when multiplied by two, it will give an approximate market value of the property. The assessor is required by law to set the assessed value at 50% of the usual selling price or true cash value of the property.
State Equalized Value (SEV): SEV is the assessed value that has been adjusted following county and state equalization. The SEV supposed to represent no more than 50% of market value. This value changes from year to year and notices are generally sent out around March 1 of any calendar year with a 10 day window for appeal.
Taxable Value: This is the value utilized to determine the current owner’s tax obligations. With limited statutory exceptions, this value “uncaps” to the amount of the SEV in the calendar year following the year purchase. Once uncapping takes place, Taxable Value can only rise slightly (historically not over 1.044) in future years based on the Inflation Rate Multiplier Bulletin
Principal Residence Exemption: A residential property owner who owns and occupies such property as a primary residence may qualify for a principal residence exemption (formerly known as a “homestead” exemption). More information can be found in the Guidelines for the Michigan Principal Residence Exemption Program. The exemption provides a significant reduction in annual property taxes in the range of 40% or 18 mills.
Special Assessments: Special assessments are taxes that are levied for items such as the installation of a sewer collection system, municipal water system, or lake management programs. Special assessments may or may not be included in the annual property tax rolls. Most often Special Assessments are not included when using the State of Michigan Property Tax Estimator. It is best to consult with the local assessor to determine if any special assessments affect a given property. In some Michigan counties, it is standard and customary for special assessments to be paid full by the Seller at closing; in other counties the buyer usually assumes any remaining payment obligation on the same terms originally issued to Seller. In either event, this responsibility should be addressed in the Buy and Sell Agreement.
Millage Rates: The millage rate is the amount per $1,000.00 used to calculate taxes on property. Millage rates are most often found in personal property taxes, where the expressed millage rate is multiplied by the total taxable value of the property to arrive at the property taxes due. Millage Rates vary by County, Township and School District. A complete list of millage rates can be found in the following resource: 2016 Total Property Tax Rates in Michigan. Note millage rates can vary from year to year and are generally set by the local taxing authority on an annual basis.
With an understanding of these variables in mind, you are now ready to being estimating your taxes now.
Again, it is important to keep in mind that while the Property Tax Estimator asks for the Current SEV. Your first calendar year property taxes will be based on the SEV established in March of the year following your purchase. Assessors are not permitted to directly use the purchase price of the property to determine the SEV, and that being said the most conservative way to calculate property taxes is to take 50% of purchase price and use this as the SEV — unless the SEV is over 50% of the purchase price. In that case you will need to read Appealing your Tax Assessment.
The above information is meant a guide only. For complete information visit Michigan.Gov/Taxes and consult an attorney well versed in the establishment of tax assessments and the process to appeal same.