How Are Property Taxes Calculated in Michigan?

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Michigan has some of the highest property taxes in the country. The average tax rate in the state is 1.632 percent, and the average property tax invoice is a cool $4,080 in 2019. On the other hand, Michigan homeowners are protected from significant tax hikes. The tax system is designed to keep property taxes relatively steady, rising only in line with inflation, even if the real estate market is booming.

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  • The state of Michigan multiplies your home’s taxable value by a tax rate, known as a millage rate, to establish your property tax bill. The taxable value is roughly 50 percent of your home’s market value, with some caps and adjustments.

What Is Your Home's Assessed Value?

The first number that affects your Michigan property tax bill is the home's assessed value. This is easy enough to calculate, as the assessed value is equal to half your home's market value from time to time.

Local assessors will figure out how much your home is worth in the open market. They typically use the "comparative sales" method to value your home, which is the same technique that real estate agents and home appraisers use when valuing property in home purchase and re-mortgage transactions.

With this technique, the assessor will look at the selling prices of similar homes in your neighborhood, then adjust that number upwards or downwards to account for your home's unique features. For instance, if other comparable homes are selling for $500,000, but your home has recently been remodeled to a high specification, the assessor may adjust the value of your home up to $530,000. That number is then divided by two to reach its assessed value.

Assessed Value Versus Taxable Value

At this point things get a little complicated, because your tax bill is not based on the assessed value – it is based on something called taxable value. When you first buy a home, the taxable value is equal to the assessed value. However, while the assessed value can go up significantly in line with the real estate market, there's a cap on how much the taxable value can increase.

Based on Michigan State Law ("Proposal A"), taxable value can only increase by 5 percent per year, or by the rate of inflation, whichever is lower. So your home's assessed value might increase by 10 percent if prices in your county are going up by this amount each year, but the taxable value will only ever rise at the rate of inflation (up to 5 percent).

For that reason, your home's taxable value is often much lower than assessed value.

Watch Out for "Uncapping"

In the year following a home sale, the taxable value of the property is "uncapped." This means all previous caps are removed, and the taxable value essentially is reset to the home's assessed value. That's why, when you buy a home, your next property tax bill may be higher than that of the previous owner.

The assessor will use the purchase price to calculate the assessed value, assuming you didn't buy the home at a discount.

Major additions or improvements like adding an extension or a swimming pool can also trigger an uncapping. If you add to the value of your home, the taxable value will be reset to the assessed value, and your taxes will rise as well.

Understanding the Mill Rate

The second number that affects your property tax bill is the local tax rate, known as the mill or millage rate. One mill is equal to $1 of tax for every $1,000 of taxable value. So, if your home's taxable value is $100,000, and the tax rate is 20 mills, then your tax bill would be $2,000 per year.

The Michigan Department of Treasury publishes a complete list of mills for the various Michigan counties. You can download this from its website. Your property tax bill will also contain the relevant millage information.

Bear in mind that some local government tax authorities including cities, school districts, the police and fire services, have their own millage rates. All the separate rates and levies get added and the total rate is then applied to your taxable value. Again, you can get a complete breakdown from the state Treasury Department.

The Principal Residence Exemption

If the home is your main residence, then you should be eligible for the Michigan Principal Residence Exemption. This protects the property from the first 18 mills in school taxes. Because of the PRE, identical houses on the same street could have different tax rates depending on whether the home is a principal residence or not.

To qualify for the exemption you must own and occupy the Michigan home as your main (principal) residence. If the property is a second home or vacation home, or you rent it out, then you won't qualify for the exemption.

Michigan Property Tax Estimator

As you can see, Michigan's property tax rules are fairly complicated, comprising a number of valuations and multiple old-fashioned mill rates. By far the easiest way to estimate your property tax bill is to plug some numbers into a property tax calculator for Michigan and see what turns out.

The Michigan Department of Treasury has an online calculator you can use. Current owners should simply enter the taxable value from their most recent property tax bill. Homebuyers are asked to enter something called the SEV or State-Equalized Value. This terminology can be confusing, but essentially it is the assessed value of the property, or roughly half the purchase price.

Select the county, city or township and school district from the drop down lists provided, and the calculator will give you the total millage rate, the estimated property tax bill with the principal residence exemption and the estimated property tax bill without the principal residence exemption. At the time of publication, the calculator is showing millage rates for 2017. 2018 rates will be posted in August 2019.

Look at the Effective Tax Rate

Instead of performing mental gymnastics with mill rates per $1,000 and taxable values, the easiest way to make sense of your property tax bill is to look at the effective property tax rate in Michigan. An effective tax rate is the percentage of your home's value that you likely will be paying in property taxes each year. The website Smart Asset has prepared a table of rates for every county in Michigan, based on the median home value and median annual property tax payment for the county.

Looking at the table, it's clear that Wayne County, which contains the city of Detroit, has the highest property taxes in the state. Homes here have an effective rate of 2.69 percent. This is more than double the national average.

At the other end of the scale, Leelanau County has an effective tax rate of just 0.91 percent. However, homes in this location are some of the priciest in the state, so the median property tax bill comes in at $2,222 annually. The other counties fall somewhere in the middle of this range with effective tax rates in the region of 1.15 to 1.75 percent.

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About the Author

Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.