Until 1994 many Michigan homeowners, particularly those on fixed incomes, were losing their homes to tax sale, because the Michigan property tax structure was completely out of control. Back in those days, if your home doubled in value, 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. Each year after that, the assessor could only raise your Taxable Value no more than 5% or the rate of inflation, whichever was less. Proposal A also said when a home sells, the cap comes off, and the Taxable Value is reset. Assessors can go with SEV or sale price, whichever is higher. However, assessors usually go with sale price as the new taxable value. So the taxes you see on a property listing on the MLS may not be what the taxes will be when it sells. Inflation had been running at about 1%, so that’s how much your Taxable Value went up. But now inflation is at 8.5%, the highest in 40 years. But remember, the assessor is limited to no more than a maximum 5% increase, unless you do improvements. So if you’re a Michigan homeowner, next year you’ll get that letter that says in big bold type “THIS IS NOT A TAX BILL”. I always say there should be a disclaimer on that notice that says says “BUT NEXT YEAR IT WILL BE”.  So when you get that letter, expect a big jump in your Taxable Value multiplier, from 1% last year, to 5% this year. That’s a 500% increase! For example: Market value of your your home is $250,000. Therefore your Taxable Value is $125,000. (half of market value). Last year your Taxable Value increase was 1% which is $1,250, increasing your Taxable Value to $126,250. But this year the assessor has the option to increase your taxable value 5% or $6250.  That would bring your Taxable Value to $131,250. Your SEV could rise much higher than that, but you don’t pay taxes on SEV, so who cares? And what is SEV anyway? Sate Equalized Value. That’s the figure they think your home is REALLY worth, but they can’t tax you on it. It’s what you USED to be taxed on before the Headlee Amendment and  Proposal A 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’re stuck with using to base your taxes on.

HOMESTEAD VS. NON-HOMESTEAD

With regard to “homestead exempt” versus “non-homestead” tax status. When Proposal A passed in 1994, 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 created a “transfer tax” when a property sells. In addition to that, they said the school tax will only be removed from the home you actually live in. That one is “homestead exempt”. Second homes, rentals, vacant homes and commercial will be “non-homestead” and will pay the extra 18 mils for schools. (That’s $18 per 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 school operating tax raises it about 40%. But nearby Cohoctah Twp millage is only about 22. So adding 18 mils there nearly doubles your taxes. Remember, this is the school operating tax. The tax that keeps the lights on, buys the books, pays the teachers etc. There may be a “School Debt” millage on your tax bill. That’s a millage that was voted in by the local homeowners. We call these “bricks and mortar millage” because it’s used only for building a new school, repairing an old one, upgrading technology etc. Your homestead is not exempt from a “bricks and mortar millage”.

Keep in mind, assessors are 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 it 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. 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 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 those high taxes until the new status is recorded. In those cases. When I represent the buyer purchasing a home that is currently non-homestead status, I add a notation to the Purchase Agreement that says “Tax prorations shall be based on homestead status” thereby saving my client from having to reimburse the seller for taxes already paid at the non-homestead rate. Sometimes they’ll grant them, sometimes they won’t. That’s what  they call negotiations.

To determine what your property taxes will be on a potential purchase, go to this State of Michigan link and enter the SEV of the home. It will show what the homestead and non-homestead rate would be. https://treas-secure.state.mi.us/ptestimator/PTEstimator.asp. 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 to see what the SEV is. Unfortunately that requires a trip to the court house. Or just email me, I’ll research it for you, and send you what the new taxes will be when it sells.