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Property Tax Daze

Real Estate Tax Law

It’s the new year meaning property tax season is in full swing. If you are a property owner in the State of Michigan you should have received a Winter Property Tax bill from your local taxing authority. Winter Tax bills are generally mailed on December 1 of each year and are due by February 14 of the following year.  Check with your local township or city for your due date. For reference, the Summer Property Tax bill is usually mailed on July 1 of each year and due by September 14 of the same year, but again, check with your local taxing authority for your due date.

With that said, you may be wondering how property taxes calculated? Property taxes are comprised of two numbers: a local millage rate and the Taxable Value of your property. A local millage is the tax rate you pay based on the value of your property. An example of a millage rate would be $1,000 for every $100,000 worth of property value. The local millage rate is determined in local elections and set by the local elected officials. Your property taxes are then used to pay for the fire department, the police department, public parks, garbage collection, elected officials, etc.

While the local millage rate cannot be changed on an individual level, the Taxable Value of your home can and is adjusted often. Each year, the local tax assessor determines the Assessed Value/State Equalized Value (SEV) of each property in the community. The SEV is equal to one-half the True Cash Value of the property. For example, let’s say your home is worth $100,000. In this example, your home’s SEV would be $50,000, i.e., one-half of the home’s True Cash Value, but we are not yet done. Once the SEV is calculated, the assessor then determines the Taxable Value of the property. A property’s Taxable Value can only increase per year by the rate of inflation or 5% per, whichever is lower.

To take our example from above regarding the $100,000 house further, let’s say you bought that home 10 years ago for $80,000. At the time you bought the home the SEV would be equal to $40,000. Your Taxable Value would therefore be $40,000 as well because it is your first year in the home. Then let’s say the year after you bought the house its value jumped to $85,000. In Year 2, your SEV equals $42,500. However, because your Taxable Value can only increase by the rate of inflation or 5%, whichever is lower, your Taxable Value is only $42,000 in Year 2 (assuming 5% is less than inflation). This means you will only be taxed based on $42,000 instead of $42,500.

As you can likely see, over many years, the difference between the SEV of a property and its Taxable Value can diverge quite significantly. This understanding is important for two reasons. First, a property’s Taxable Value remains capped unless the property is sold or improved. If you sell the house, the new buyer’s Taxable Value will equal the current SEV. Likewise, if you remodel the home, say by finishing the basement, the Taxable Value is uncapped to the extent of the increase in the value of the property. Second, if you want to transfer the property to a relative, say your child, the Taxable Value will be uncapped.

This is where an experienced real estate attorney can be of assistance. Michigan law allows certain exemptions from property taxes being uncapped. Transfers from a parent to a child or vice versa, transfers to or from a Trust, and other specified exemptions are ways to avoid property taxes being uncapped.

Likewise, when the tax assessor issues the assessment for a property each year, the property owner can appeal the assessment. The process to appeal a property tax assessment starts by attending a Board of Review hearing. The local Board of Review must meet on the second Monday in March each year to hear protests to property tax assessments. However, please check with your local taxing authority as the Board of Review hearing date may be scheduled for a different date.

If a property owner intends to appeal his property taxes, he must protest his taxes by filing a Petition to the Board of Review in person. If the property owner fails to protest his assessment at this meeting, he will be barred from further appealing his assessment. After the Board of Review hearing, if the property owner still disagrees with the assessment, he may then file an appeal to the Michigan Tax Tribunal who will consider his case. The deadline to file such an appeal varies based on property owner type.

A final note of caution, if you have recently bought a home, it is especially important to be mindful of your first tax assessment on the property. Even if you buy the house for less than the previous “True Cash Value” of the home, the assessor may not necessarily lower your new True Cash Value to the price you actually paid. In this scenario, assuming the purchase price of the home was supported by an appraisal, an appeal of your assessment is important to ensure you establish a low initial Taxable Value. As explained thoroughly above, once a Taxable Value is set, it can only increase each year by the rate of inflation or 5%, whichever is less, regardless of any increase in the True Cash Value of the home.

Property taxes are annoying, they are expensive, but they are important. It is therefore also important you have an experienced real estate attorney assisting you if you think your property taxes are too high. Shinners & Cook has handled countless transfers of property and property tax appeals in recent years and can be trusted to assist you with your needs as well. If your property taxes are keeping you up at night, please call Shinners & Cook to speak with our experienced attorneys today.