Insights: Series 2
property tax assessment notices and invoice on wood table

Property Tax Assessments in Michigan: How Your Home is Valued

Learn how your Michigan property tax assessment works, including what assessed value means, how it’s related to taxable value, and why it’s not the same as fair market value.

How Homes are Assessed in Michigan

In Michigan, real property, which consists of land and all its improvements (such as a house), is assessed based on its True Cash Value (TCV).

True Cash Value refers to the "usual selling price" that a property would bring at the time of assessment, which is the price it could obtain at a private sale. However, it excludes certain situations like forced sales and public auctions, among other specific exclusions.

Unfortunately, this brief definition often causes some confusion between TCV and the more familiar Fair Market Value (FMV), especially for property owners in Michigan.

The Difference Between True Cash Value and Fair Market Value

While they may seem to be describing similar things, True Cash Value (TCV) is not the same as Fair Market Value (FMV).

Fair Market Value is used primarily when buying and selling residential real estate and reflects the price a property is worth in a free and open market.

The best example of FMV occurs when I sell a home for a client. For most intents and purposes, the final selling price can be considered its FMV. In other words, FMV is determined by the market, not an assessor (who you will see is constrained by law).

True Cash Value, on the other hand, is more technical and nuanced. It's defined by Michigan's General Property Tax Act (Section 211.27) and represents the usual selling price of a specific property at the time of assessment. It also considers statutory exclusions and specific factors outlined in the law (more on this below).

The Michigan Constitution also requires that real property be assessed uniformly at a rate not to exceed 50-percent of TCV. As a result, this legal mandate creates a broad three-step process for property tax assessments.

For the sake of simplicity, remember that TCV is mainly used as a basis when determining property value for tax assessments, and it rarely relates to FMV prices (which are often much higher).

With these important differences in mind, let's break down how real property, like your home, is assessed for taxes in Michigan:

Step 1: Assessed Value

The first step in the process is to calculate the "assessed value" of a property. Each local unit (city or township) has an assessment officer whose task it is to calculate each property's assessed value.

Simply put, the assessed value is a determination made by the assessor that represents 50-percent of a property's TCV. This valuation is based on the property's condition as of December 31 of the previous year.

Step 2: State Equalized Value (SEV)

In the second step, each county's Board of Commissioners and the State Tax Commission reviews the local assessed values and applies an adjustment factor known as equalization.

The purpose of equalization is to ensure that property valuations within each assessing unit and county are as close as possible to the 50 percent target (and so each pays their "fair share" of taxes).

The resulting valuation is known as state equalized value (SEV). However, it should be mentioned that SEV is almost always the same as assessed value.

Step 3: Taxable Value

Once a property's assessed value is determined and equalized, the final step is to calculate its taxable value. Importantly, taxable value is the amount on which property taxes are levied.

In Michigan, a property's taxable value will always be the lesser of either:

  1. The previous year's taxable value, less any losses, multiplied by CPI (the Consumer Price Index, used to represent the rate of annual inflation) or 1.05 (5%), whichever is less, plus all additions; or
  2. The current SEV.

Given that taxable value has a direct impact on the amount of property tax you pay, it might also influence when is the best time for you to sell or buy a home in Northern Michigan.

So in the following section, we'll get into more specifics to help make sense of an often confusing topic.

How Taxable Value Works in Michigan

Now that you know how your property in Michigan is assessed for tax purposes, let's take a closer look at taxable value to understand how it works and what affects it the most.

As described above, a property's taxable value will be the lesser of SEV or the previous year's taxable value (minus losses) multiplied by the lesser of CPI or 5% (plus additions). But what determines which value applies?

Uncapping Taxable Value

In order for taxable value to use SEV, the property would have had to been purchased the previous year. This is exactly what happens in a typical real estate transaction.

For example, when you buy a home in Michigan it results in a conveyance of title which is considered to be a transfer of ownership. In terms of taxable value, a transfer of ownership is an "uncapping" event.

Whereas taxable value is generally capped and cannot increase each year by more than the lesser of CPI or five percent, plus any physical additions or less any losses (together known as the "capped value"), a transfer of ownership removes this cap for the following tax year.

So in this case, your taxable value in the year following a home purchase will uncap and reset to match your property's SEV. But in the years that follow, your taxable value will return to being capped.

Additions and Losses

When you're planning an addition to your home, it's important to consider its effect on taxable value. New construction like an addition doesn't uncap your taxable value, but it will likely increase it.

As an example, let's say a new addition to your house is worth $50,000 in true cash value. The calculation then would look like this:

New Taxable Value = Previous Year's Taxable Value x CPI or 5% (whichever is less) + $25,000 (50% of the new addition's TCV).

Similarly, losses that result in a decrease of value would likely reduce your taxable value. A loss would include property that has been destroyed or removed. If your property had a loss of $50,000 in TCV, your taxable value calculation would be:

New Taxable Value = Previous Year's Taxable Value - $25,000 (50% of the loss's TCV) x CPI or 5% (whichever is less).

Normal Repairs, Replacement and Maintenance

As a property owner in Michigan, you'll be happy to know that most normal repairs and replacements done on your home will not increase its taxable value.

The following items are considered "normal maintenance" and assessors are mandated to exclude them from the TCV of a home:

  • Outside painting;
  • Repairing or replacing siding, roof, porches, steps, sidewalks, or drives;
  • Repainting, repairing, or replacing existing masonry;
  • Replacing awnings;
  • Adding or replacing gutters and downspouts;
  • Replacing storm windows or doors;
  • Insulating or weatherstripping;
  • Complete rewiring;
  • Replacing plumbing and light fixtures;
  • Replacing a furnace with a new furnace of the same type or replacing an oil or gas burner;
  • Repairing plaster, inside painting, or other redecorating;
  • New ceiling, wall, or floor surfacing;
  • Removing partitions to enlarge rooms;
  • Replacing an automatic hot water heater;
  • Replacing dated interior woodwork;
  • Installing, replacing, or repairing an alternative energy system (with certain limitations);
  • Installing, replacing, or repairing a whole-home generator.

How to Calculate Property Tax

Armed with all this knowledge of assessments and value, the logical next step is to calculate your property tax.

Fortunately, the calculation is very simple: take your property's taxable value and multiply it by your millage rate, then divide it by 1,000. The formula looks like this:

Property Tax = Taxable Value x Millage Rate / 1000

Common Questions About Property Tax Assessments

It's clear that when it comes to property tax assessments and valuations, the nuance of the topic can be overwhelming. So for some additional clarity, let's provide answers to some frequently asked questions.

What's The Difference Between an Assessment and an Appraisal?

An assessment is primarily concerned with the true cash value of a property and is primarily used for tax purposes. It considers things like location, size, and zoning.

A home appraisal evaluates a property's value in the open market. It heavily considers recent sales of comparable properties, the size of a home and its condition. Appraisals are often used in relation to buying and selling a home or other real estate.

Can a Property Tax Assessment be Wrong?

Yes. While your local assessor follows well established guidelines when assessing property, mistakes can always happen. As a property owner, you should always carefully review your assessment notices and property tax bills. Take the time necessary to make sure you understand any changes from the previous year and that they're inline with reality.

Can You Dispute Property Tax Assessment?

Yes, and not only can you dispute your property tax assessment, many seasoned real estate professionals consider it to be a property owner's civic duty!

How Do You Dispute Your Property Tax Assessment?

To dispute your assessments, a good first step is to request your property's appraisal record from your local assessors office. And as a comparison, you might also request records of similar properties that are nearby. An appraisal record will show you facts about your property's characteristics that the appraiser believes to be true. If you notice any inaccuracies or errors, you'll want to bring this to the assessor's attention.

Another solution is to simply talk to your local assessor and ask for any clarifications. Fortunately, because Northern Michigan is primarily rural, local assessors are relatively accessible and accommodating.

When there are no errors on your appraisal record and you're still not satisfied even after speaking with your assessor, you can still appeal your assessment with your March Board of Review. This purpose of this board is to hear appeals and make decisions on property assessment disputes. Remember to contact your city or township office for any deadlines.

If you're still not satisfied after exhausting all these local options, you have the right to file an appeal with the Michigan Tax Tribunal. But you might consider first finding a lawyer who specializes in property tax appeals. They'll help guide you and can assess your chances of success. The cutoff date for your appeal to the state is usually June 30 of each year.

Wrap Up: Navigating Property Tax Assessments in Michigan

Understanding property tax assessments in Michigan is vital for every homeowner. It's a proactive step in managing one of your most significant investments and valuable assets — your home and real property.

By first learning the dfference between True Cash Value and Fair Market Value, Michigan's property tax assessment process starts to make more sense. With this knowledge, it's easier to understand the three-step process that determines a property's taxable value in our state.

Remember, while this article provides a comprehensive overview, the specifics of each property can vary. Events like making home improvements, experiencing property damage, or buying a new home can all influence your tax bill in different ways. It's always a good idea to keep records of any significant changes to your property and consult with local assessors or tax professionals for personalized guidance.

Moreover, being informed empowers you to ask the right questions and make well-informed decisions. If ever in doubt, reach out to your local tax office or seek advice from real estate professionals in your area. After all, knowledge is not just power, it's also peace of mind when it comes to the complexities of property taxes.

All content on this website is for information purposes only. Any information contained herein is not intended to provide legal or financial advice, nor does it create an agency relationship. All information is made available without any guarantee, warranty, or representation of any kind. It is your sole responsibility to seek the services of your own legal, financial, accounting, and real estate professionals prior to any such related decisions or transactions.

© Harbor Prime, All rights reserved. This information may not be copied, used, or distributed without Harbor Prime's consent.

Buying or Selling Up North?
agent profile icon
Sell with a Local Pro
Put Together the Perfect Offer
agent profile icon
I'll Find It For You!