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What is all this property tax stuff?

What is all this property tax stuff?

I am going to be writing today about how property taxes work in the state of Michigan. My next blog post will be about how to appeal if you believe that your property was not valued accurately by the assessor.

On January 22 the city of Grand Rapids (other townships or cities might do this slightly later) mailed out notices that you might be tempted to ignore because it says in big red lettering on the top “THIS IS NOT A TAX BILL”. However, there are two things on this piece of paper that are very important: your 2010 assessed value and further down the “% Exempt as ‘Homeowner’s Principal Residence'” (this is especially important to double check if your purchased your home this year and the home was vacant).

Let me explain what all this stuff means. In the middle of the paper are lines showing taxable value, assessed value, and state equalized value (referred to as SEV).

Assessed value is calculated as half of what the assessor believes that your property is worth. For example, if the assessor believes that your home is worth $200,000 then your assessed value is $100,000. The assessed value multiplied by your millage rate (different per city or township and school district) and then divided by 1,000 is how property taxes are calculated. Therefore if your assessed value is too low, then great! Your property taxes are too low! If your assessed value is too high, you’ll want to appeal.

On March 15, 1994 voters approved a constitutional amendment known as Proposal A. Prior to Proposal A your property taxes were based on the assessed value of the property. Proposal A changed the rules so that now what you are actually taxed on can only increase by the lesser of the rate or inflation or 5%. So, if your property value increases by more than inflation you’ll be taxed on this new lesser amount: the taxable value. In theory, the longer you own the property the greater the difference between the two numbers. However, when the property is sold it “uncaps” and the new owner’s taxable value is reset to the assessed value. If your taxable value is still less than half of your market value it still may be worthwhile to appeal if you are thinking of selling, as this will affect affordability for your buyer.

The State Equalized Value is not technically the same as the assessed value, but it is generally the same number as the assessed value. If it’s not please feel free to contact me to discuss why these would be different (it’s rare so I’m not spending time on it today).

The other thing on this notice that is important is the Principal Residence Exemption percentage. You and your spouse together are only allowed one homestead, so if you have a second home or a rental property the percentage on these properties would be zero and the percentage for your primary home is 100%. Why the difference? There are actually two different millage rates: homestead and non-homestead. The non-homesteaded rate charged is almost twice as high, so this is important to pay attention to. 2010 property taxes are based upon whether it was homesteaded or not on May 1, 2010 so this is a deadline to pay attention to if you are thinking of purchasing a home. If you buy a foreclosure and close on May 2 you will be assessed at the higher rate.

So, ignoring this piece of paper could cost you a lot of money!! If you have questions, please call me.