Until 1994 many Michigan homeowners, particularly those on fixed incomes, were  losing their homes to tax foreclosure, because our property tax structure was completely out of control. Back in those days, if your home doubled in value, so did your assessment, therefore so did your taxes. However, the Headlee Amendment and Proposal A stopped the double digit escalation of assessments and capped the Taxable Value of every home in Michigan at its 1994 value. After that, regardless of how much your home appreciated, even if your home doubled in value, the assessors could only raise your Taxable Value no more than 5% or the rate of inflation, whichever was less. Inflation had been running at about 1%, so that’s how much your taxable value went up every year. But starting in 2020 the inflation rate was 8% the highest it’s been in 40 years. However, your Taxable Value cannot go up any more than 5% or the rate of inflation, whichever is less. So that’s how your assessment is determined every year, unless you do improvements. This new law also said when a home sold, the cap came off, and the Taxable Value is reset to the sale price or the SEV, whichever is higher. Assessors most always go with sale price as the new taxable value, because it’s usually higher than the SEV.  So the taxes you see on a listing, may not be the taxes when it sells. Often they will be higher. And what is SEV anyway? Sate Equalized Value. I like to call it the “this is what we think your home is really worth, but can’t tax you on it.” figure. It’s what you used to be taxed on before the Headlee Amendment came along.  So now you see two figures on your tax bill. The SEV, (the figure the assessor thinks your home is really worth), and the Taxable Value, which is the lower figure they base your taxes on. 

HOMESTEAD VS. NON-HOMESTEAD

With regard to “homestead exempt” versus “non-homestead” tax status. When Proposal A passed, and the 18 mil school operating tax was removed from homes, they had to figure out a way to get it back. (Of course!) So they hiked the sales tax from 4% to 6% and they said the 18 mil school tax will only be removed from the home you actually live in. Your primaryresidence. That one is “homestead exempt”. Second homes, rentals, vacant homes and commercial will be “non-homestead” and will pay an extra 18 mils for schools. (That’s $180 per hundred thousand of taxable value). How do you know if a property on the MLS is “homestead exempt”? On the listing there will either be a “Y” or an “N” next to the word “Homestead”. Depending on the local millage, non-homestead status can raise your taxes 40% to 100%. Example; City of Howell millage is about 42. So adding 18 mils raises your taxes about 40%. But nearby Cohoctah Twp millage is only about 22. So adding 18 mils there nearly doubles your taxes.

Keep in mind, assessors are often on the prowl looking for vacant homes so they can change them from homestead to non-homestead status and get more tax dollars. When a non-homestead status home sells, if the new owners will be using it as their principal residence, they will change back to homestead status at close. That’s the good news. The bad news is Proposal A is a state law, not a local law. And the state will not record the status change every time a home sells. Too much work. They will only change the status twice a year, June 1st and Nov 1st. So, if you miss one of those deadlines to change the status from non-homestead to homestead, you'll pay the higher non-homestead tax rate until the next deadline. So, if you close right after the June 1st or Nov 1st deadline, on a non-homestead property, the best you can do is negotiate with the seller and ask for concessions to cover the tax prorations at closing, or prorate taxes at the homestead rate, until the new status is recorded. Sometimes they’ll grant them, sometimes they won’t. That’s why they call it negotiation. When I submit an offer on a non-homestead property that will change to homestead at close, I always ask for tax prorations to be at the homestead rate.

To determine what the property taxes will be on a home you may be considering buying, go to the State of Michigan Property Tax Estimator website and enter 50% of the list price or the SEV of the home. It will show what the homestead and non-homestead rate would be. The SEV will not be on the listing. Only the current taxes the seller is paying will be there. You need to look at the deed records and/or tax records to see what the SEV is. Unfortunately, that requires a trip to the courthouse. Or just email me, I’ll research it for you, and send you what the new taxes will be when it sells.