Property Tax

[MI-Roger]

A $850K sales price home would have a new assessed value of $425K for taxation purposes. Assessed Value is 50% of Market Value, so a recent sale is automatically 50% of transaction cost. There may be ways to keep the transaction cost 'hidden', so the Tax Assessors will have to work their magic to determine the market value which will likely be to your favor. Ask your Real Estate Agent if sales prices can be kept confidential. I know at one time it was possible, don't know if sales price confidentiality is still possible.

$425K times $49.0725/$K of Assessed Value equals $20,855.81 per year in total property taxes.

Please correct my formula if it is incorrect.

[terryellen]

Thank you for that explanation... they don’t make it easy to figure out!

[jackmichigan]

Originally Posted by MI-Roger

A $850K sales price home would have a new assessed value of $425K for taxation purposes. Assessed Value is 50% of Market Value, so a recent sale is automatically 50% of transaction cost. There may be ways to keep the transaction cost 'hidden', so the Tax Assessors will have to work their magic to determine the market value which will likely be to your favor. Ask your Real Estate Agent if sales prices can be kept confidential. I know at one time it was possible, don't know if sales price confidentiality is still possible.

$425K times $49.0725/$K of Assessed Value equals $20,855.81 per year in total property taxes.

Please correct my formula if it is incorrect.

Although a sales price would be a good indicator of the true cash value of a property, it is not automatic that the State Equalized Value (which is supposed to represent 50% of true cash value) will become 50% of the purchase price. To wit:

Section 211.27(5): “Except as otherwise provided in subsection (6), the purchase price paid in a transfer of property is not the presumptive true cash value of the property transferred. In determining the true cash value of transferred property, an assessing officer shall assess that property using the same valuation method used to value all other property of that same classification in the assessing jurisdiction.”

Still, it would be conservative to prepare for the possibility that the State Equalized Value may be raised to half of the purchase price. It's just not a given.

As to your other point as to keeping the purchase price confidential, no, that's not really possible nowadays, as it was before. There are ways to conceal the purchase price on a deed, however transfer taxes still need to be paid on the purchase price--making it relatively easy for someone to calculate the purchase price; plus, a Property Transfer Affidavit needs to be filed with the Assessor. The sales price has to be noted on the Affidavit.

OP, you need to be aware that real estate in Michigan has two assessment levels: the State Equalized Value (SEV), which is supposed to reflect 50% of true cash value, and the Taxable Value, which is the amount on which taxes are levied. For the assessments after a property is purchased, the SEV and the Taxable Value are the same (with some exceptions). The rate of increase in the Taxable Value is capped under state law--at 5%/year or the rate of inflation, whichever is less. In times of rapid appreciation, the market value of the property may increase faster than the Taxable Value so, as others have noted, long-held property may have a lower Taxable Value upon which taxes are paid.

Once a property changes ownership, however, the Taxable Value is automatically bumped up to the State Equalized Value. So, it's important to know both the SEV and the Taxable Value on any house you are considering. If the SEV is higher than the Taxable Value, you can count on your taxes going up. If the Assessor feels that your purchase indeed represents the true cash value, they may raise it above the present State Equalized Value as well. Assessment levels are determined each calendar year based upon the ownership and value of the property on the preceding December 31st, however Taxable Value may be bumped up to the SEV after a sale, affecting the next tax bill (we have Summer and Winter property tax bills).

It's all sounds rather complicated, but once you become familiar with the process it's really not all that difficult to understand. It's more difficult to try to explain it.