If you’re buying a home in Michigan, you may have a question or 6 about property taxes. Or maybe you have no idea how they work. If that’s the case, I suggest you keep reading so I can explain to you briefly about Michigan property bills. This may not be the most interesting topic in the world, but having knowledge about this, could save you thousands of dollars.
What’s going on everyone! It’s Andrew McManamon, a licensed Michigan Realtor coming at you with a topic that’s often overlooked by buyers in a real estate transaction until it’s too late, and that’s property taxes.
Without sugar coating this, let’s jump right into the first question: What are property taxes? Property taxes are paid on an owned property by an individual or entity. They are a type of “ad-valorem tax” which means they are calculated as a percentage of the assessed value of the property being taxed.
How are property taxes determined in Michigan? Michigan property taxes are billed twice a year, one being the 1st of July and payable without penalty or interest by September 14 (summer taxes), and the other being the first of December and payable without penalty or interest by February 14 (winter taxes). You may be wondering why summer taxes are substantially more than winter taxes, and the answer comes from the next question,
what are property taxes used for? Property taxes in Michigan are used for different public services throughout the state, law enforcement, education, fire responders and government services as well. The reason summer taxes are more expensive than winter is due to the timing of funding for education, police and fire, as well as street repair, as that is done in the warmer weather.
That brings us to the next question, what are property taxes based on anyways? On your tax bill you’ll see these three values: Assessed Value, State equalized value (SEV), and Taxable value. Before I continue, don’t forget to whip out your pen and paper to make some notes if you think you’ll have some questions later on!
Alright, onto the vocabulary, The assessed value is determined by a property’s market value, which is set by an assessor who takes the market value and divides it by 2 to get the property’s assessed value.
Local assessors will typically use a comparable sales method, just like a real estate agent and appraiser would do when pricing a home. With the comparable sales method, the prices of similar homes that sold in your neighborhood would be considered, as well as any unique home features or lack thereof, would be taken into account and the price would be adjusted accordingly.
Keep in mind that your tax bill isn’t based on the assessed value, it’s based on the taxable value. When you first purchase your home, you’ll notice that the taxable value and the assessed value are equal, but since the assessed value is based on the market value, you’ll notice that figure increase substantially overtime while the taxable value slowly trickles up, as there’s a cap on how much the taxable value can increase.
Based on Michigan tax Laws, the taxable value can only increase by the rate of inflation or 5% per year, whichever one is lower. So you may see your assessed value jump 10-15% in a year depending on the real estate market in your area, while the taxable value maxes out at 5% in a year. New home buyers need to understand that the taxable value in a year following a home sale becomes “uncapped.”
This means that the taxable value is reset to the home’s assessed value essentially. So when you’re receiving listings from your Realtor or scrolling on Zillow and see how appealing a home’s property taxes are, keep in mind that those taxes aren’t based on the amount you’re buying the home for. The owner could’ve bought this home for $45,000 30+ years ago, and you’re about to buy it for $275,000.
The same thing goes for an investor who is trying to de-load a property they bought a couple years ago. Their taxes would be higher as they are non-homestead, but keep in mind the price they purchased the home for, and the price you’re about to purchase the home for will need to be factored in.
The state equalized value (SEV) is the homes assessed value that has been adjusted following county and state equalization, which is the Michigan State Tax commission reviewing local assessments and adjusting or equalizing them accordingly.
Before I jump into what the taxable value is, I want to define what a Millage rate is. A local millage rate is the rate at which property taxes are levied on property. A mill is 1/1000 of a dollar, and property taxes are calculated by multiplying the taxable value of the property by the number of mills levied, divided by $1000.
So for example, if your home’s taxable value is $100,000, and the local millage rate is 20, multiply those numbers together and divide by 1,000. The estimated property tax amount is $2,000. This millage rate can be found on your property tax statement or by contacting city/township/village/county assessor’s office or on their website.
The millage rate is also broken down on your statement to inform you of where that rate comes from. I will include a link in the description for 2020’s total property taxes in Michigan by County (https://www.michigan.gov/documents/taxes/2020_Total_Property_Tax_Rates_in_Michigan_for_Web_715672_7.pdf)
The taxable value is the value used to determine the property owner’s tax liability. When you multiply the taxable value by the local millage rate, you will determine your tax liability. The Taxable value is figured based on the subtraction of all your exemptions that you’re eligible for.
For example, in Michigan there is something called a principal residence exemption or PRE, which exempts a residence from the tax levied by a local school district for school operating purposes up to 18 mills, and the way to qualify is to simply be a Michigan resident who owns and occupies the property as a principal residence. If you’re someone that owns a property but doesn’t live in it, such as a rental, Airbnb, etc. you can expect to pay roughly 30% higher property tax bills.
I know property taxes can be a very confusing conversation, but please understand that you don’t need to break out the old chalk board and go Albert Einstein mode to try and estimate what your property taxes are going to be. I simply wanted to break down the meanings and some calculations that are done to calculate your property taxes, as well as include some terms you may come across when property taxes come into conversation.
If you’re curious about what your property taxes may be, Click the link in the description to be redirected to The Michigan Department of Treasury’s property tax estimator. If you’re having a hard time finding the values I mentioned previously, reach out to a real estate professional like myself to get the numbers to plug into the estimator. https://treas-secure.state.mi.us/ptestimator/PTEstimator.asp
Andrew McManamon is a licensed Real Estate Professional in the great state of Michigan. His philosophy to put people first has paved the way to his extraordinary real estate career. Born and raised in Brighton, MI, Andrew acquired a bachelors degree in business management and marketing from Cleary University in Howell, MI. The combination of his experience and education allows him to take a strategic approach towards every transaction and help his clients make more informed and confident decisions.