Be an Informed Buyer

Knowing these basic principles concerning the property tax formulas will help you understand what happens to the property's taxable value after a transfer of ownership. The "capped taxable value" formula that was demonstrated earlier relates to properties that have not experienced a transfer of ownership in the previous year. The "uncapped taxable value" is the term used to describe the taxable value calculation in the year following a transfer of ownership. This calculation is very simple.

In the year following a transfer, the uncapped taxable value will be the same value calculated as the SEV. In other words, the taxable value will be equal to 50% of true cash value. An illustration of this using the values from the previous example would show that if the true cash value of the property was determined to be $70,000 on December 31, 2015, the 2016 state equalized AND taxable values would be $35,000 (50% of the true cash value).

It is easy to see that the difference the transfer of ownership has made for the taxable value is the difference between what would have been the capped value of $34,895 and the now uncapped value of $35,000. Fortunately for Michigan taxpayers, it is only in the first year following the transfer that the calculation is done in this manner. In the second year following the transfer of ownership, the property will once again enjoy the protection of the "cap" until the property experiences its next transfer.

One of the frustrations for potential buyers who are trying to determine what the uncapped taxable value will be on the property they buy is that the assessing cycle that most assessors work under does not allow for a calculation of an exact assessed and taxable value for the following tax year until all sales studies have been completed and analyzed by both the local assessor and the Equalization Department. The results of those studies are typically not integrated into the value calculations until late in the year. So, while most property owners can estimate their next year's taxable value by multiplying the new CPI by the previous year's taxable value, property owners whose properties experienced a transfer of ownership must wait until the assessor has determined the assessed value to know for sure what the taxable value will be.

Property Tax Laws

Michigan's property tax laws are complicated and contain many provisions that can affect the taxes paid on a property. Although not specifically addressed here, there are different types of transfers of ownership that can occur that will "uncap" a property's taxable value. Property owners should be aware that many of these transfers do not involve an actual sale, but come about as a result of estate planning, family sales, etc.

Property owners should inform themselves of the consequences that an instrument of transfer may have on their property taxes. This information can be found here.