Schaub Team Blog

Understanding Michigan Property Taxes

Posted by Jamie Jewell on Jan 30 , 2024 - 09:42 am

The Internal Revenue Service opened the 2024 tax season on January 29th allowing individual tax returns to be collected and processed by the deadline of April 15th.  The looming IRS tax season falls on the heels of Michigan's Property Tax Assessment Day, December 31st when property values and taxes are determined for the following year.  Typically, winter tax bills are due in February, and summer bills in July.

The rising property values, particularly in our region, have raised some questions from new Buyers who may not realize their property taxes were going to "be so high".

Back in 1994, Michigan voters passed Proposal A which limits the amount that property taxes can increase on an annual basis.  Brad Ward, VP of Public Policy & Legal Affairs for Michigan Realtors® states, "When the ballot measure passed to establish Michigan's current property tax system, we traded volatility in our property taxes for predictability."

In Michigan, when a property is purchased the taxable value is capped and cannot increase by more than the rate of inflation or a maximum of 5%.  The longer a person owns the property, the more likely it is that there is a significant difference between the property's taxable value and SEV (State Equalized Value) or, more importantly, the home's market rate.  The property owner may see a dramatic increase in the value of their home, but only be paying a fraction of the increase in taxes.

That is until the property is sold, at which time the taxable value is uncapped on the next Tax Assessment Day (December 31st).  The new Buyer's taxable value will increase to the full SEV (State Equalized Value).  This tax is sometimes referred to as a "pop-up" tax and can be a surprise to a new Buyer with a mortgage that may have their monthly payment calculated on the tax bill of the Seller.  The escrow may be short after the Tax Assessment is completed.

While every Seller Disclosure alerts Buyers to potential changes in property tax liability, planning for the increased tax may be overlooked.  With the help of a Property Tax Calculator, Buyers can get an estimate by entering the purchase price and calculating the current millage by school district.  While the tax calculator cannot provide an exact tax for the future, it can get close.  A local Assessor's office will have the most up-to-date information on millage rates and special assessments that will affect taxes.

Questions?  Contact Schaub Team Premier Realty for additional assistance.