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With affordable housing, a stable job market, and a booming economy, Michigan is the perfect place to invest in real estate. However, doing your research is essential. Property taxes are one of the most important aspects to pay attention to when considering a property investment in Michigan.
Whether you choose the allure of Dearborn Heights or the dynamic diversity of Detroit, it's important that you understand your tax obligations. The truth is that navigating property taxes can be challenging, even for seasoned real estate investors. That's why we created this comprehensive guide.
In this article, we'll provide everything you need to know about how taxes work, how they are calculated, the ways you can legally save on taxes, and more.
Understanding Property Taxes in Michigan
In Michigan, property taxes are handled by each town or city. Individual properties will have their property taxes evaluated by the municipality. Each city or township will review and assess each residence independently in order to determine property taxes.
To do this, an assessor will determine the value of the property by comparing it to market trends for similar properties in the area. This is known as the assessed value. Once the home value is determined, the appraiser will assign an amount to your home that is half of its proposed worth. This is known as the State Equalized Value (SEV).
It's important to remember that these figures are not set in stone. They are only estimates and are not representative of what your house will sell for when it is put on the market. Most of the time, these statistics are close to the average market price, although it can be much higher in some cases.
In addition to the SEV, you will also see a taxable value on your property tax bill. With the exception of the initial year of ownership, this will be the amount by which you are taxed. A CAP rate limits the amount that can be collected.
This means that the city or town may only increase your property tax by the rate of inflation, not by the value of appreciation. In other states, renovations and upgrades to the property are often taken into consideration when taxing homeowners. However, in Michigan, taxes may only be increased by the current market inflation value, irrespective of increased property value.
How Many Times Do You Pay Michigan Property Taxes a Year?
Taxes on real estate in Michigan are normally paid twice a year. Local taxing agencies, such as counties, cities, and townships, issue property tax bills that normally follow the following schedule:
- Summer property tax. This is also known as the "summer tax" and must be paid in July. It covers taxes from the first of July to the 30th of June of the following year. Summer tax bills are normally mailed to homeowners in early July, with payments due shortly thereafter.
- Winter property tax. In December, the "winter tax" is due. It is valid from the first of December to the 30th of November of the next year.
Keep in mind that local municipalities may enforce their own billing dates, so be sure to check with local authorities to confirm the due dates for your property taxes.
The Consequences of Late Payment
It's important to make payments on time, as failure to do so can have various repercussions for taxpayers. In the section below, we'll take a look at some of the consequences of paying your property taxes late.
- Financial penalties. If you miss the payment due date for your property taxes, you may be charged a penalty or interest. These amounts can accumulate and add up, which can make remaining up to date that much harder.
- Property lien. Suppose your property taxes continue to remain unpaid. In that case, the relevant local taxing body may impose a tax lien on your home. A tax lien is essentially a legal claim made on a home that might lead to further penalties, such as foreclosure.
- Foreclosure. When property taxes still aren't paid, it could lead to foreclosure of your property. The timelines for foreclosure will differ by city or town, so it's important to check the repercussions posted by your local municipality.
- Tax sale. A redemptive period is often offered, but if you do not make payment within that timeframe, your property will be auctioned. This means that you will lose ownership of your home.
In addition, missed payments could also have grave consequences for your credit score, which can make obtaining credit impossible in the future. You could also end up having to pay additional legal fees, so we cannot stress the importance of staying on top of your taxes enough.
How to Pay a Property Tax Bill in Michigan
Payment methods vary from one city, town, or county to the next. Most counties, like Wayne County, offer online payment options. Most homeowners are also allowed to pay their taxes in person. It's important to check your property tax bill or visit your local assessor's office for more information on how to pay your taxes.
How Much Is Property Tax in Michigan?
Property taxes in Michigan will vary greatly based on a number of factors. The average effective property tax rate in the state is 1.64 percent.
Let's explore some of the factors that contribute to the amount you will pay.
Assessed Value
The assessed value of your real estate in Michigan is an important consideration when determining property tax amounts. Your local tax assessor's office determines this value, which signifies the taxable worth of your property. It's important to remember that it does not necessarily represent the current market value of your home.
Taxable Value
Your home's taxable value corresponds closely with its assessed value, but it is subject to various caps and limitations under Michigan's real estate tax regulations. As long as the property does not change ownership or undergo other specific changes, the taxable value may rise each year by less than five percent or the rate of inflation - whichever is lower.
Millage Rates
Local taxing entities, such as municipalities, school districts, and special districts, establish millage rates. These values are given in mills, with one mill equaling $1,000 in property value. The total millage rate that applies to your real estate is determined by adding the millage rates of all taxing agencies in your region.
Exemptions
If you qualify for a partial or full tax exemption, it will affect the amount you pay. We will discuss various exemptions that may apply in the section below.
The Classification of Your Property
The truth is that not all property types are taxed the same way. A multi-family home, for example, may be taxed differently than a single-family property. Again, these classifications may differ depending on the county, city, or town you live in.
In addition to the factors mentioned above, changes in legislature, special assessments, and property improvements may have an impact on the amount you pay.
How Is Property Tax Calculated in Michigan?
In Michigan, tax rates are based on the taxable value of your real estate. The state government imposes a six-mill statewide tax, with additional rates, such as school taxes, established by local taxing bodies such as school districts and city governments.
In Michigan, property tax rates are represented in mill rates. A mill is equal to one dollar of tax for $1,000 of taxable value.
How Can I Lower My Property Taxes in Michigan?
According to SmartAsset, Michigan has high property taxes when compared with the national average. If you believe that you are being overcharged or would like to explore various avenues to try and lower your property taxes, there are various legal ways that you can try.
Query the Assessed Value of Your Home
The truth is that assessments can often be inaccurate, which leads to inflated tax values. You can do a bit of research by looking at the value of other properties in the area to learn whether the assessed value is accurate. If you find that it is much higher, then you can file an appeal to get the value lowered.
Explore Tax Relief Programs
Michigan has several real estate tax relief programs for low-income residents and retirees. Such initiatives may offer deferrals or partial exemptions. Contact your local assessor's office to learn more about the tax relief programs available in your city or town. Alternatively, you can visit the Michigan Department of Treasury.
Apply for an Exemption
If you fall into one of the categories mentioned below, you could qualify for a tax exemption. Here are some of the property tax exemptions available to the residents of Michigan:
Principal Residence Exemption (PRE)
Do you own and occupy your home in Michigan? If that's the case, then you might be eligible for a principal residence exemption. This exemption can be used to lower your tax rate if you own and live in a property in the state.
Disabled Veterans Exemption
Are you a US veteran or an active member of the military? If that's the case, then you may qualify for an exemption.
Agricultural Exemption
In some cases, properties used for agricultural purposes may qualify for a tax reduction, so if you run a business and use your land for growing crops, you could apply for this exemption.
There are other exemptions that you may qualify for. To learn more about the ones that apply in your county, be sure to visit your local assessor's office.
Conclusion
With a strong economy and job market, in addition to a plethora of attractions, Michigan is a great place to live. However, when investing in real estate, understanding the tax implications is important. Because tax laws are constantly being updated and regulations vary by county and city/town, it's important to remain up to date.
Be sure to visit your local assessor's office if anything is unclear or if you feel you have been overcharged. It's important to stay on top of things to avoid penalties.
By consulting a tax advisor and ensuring that you have a good understanding of tax regulations, you can ensure that the complex aspect of property taxes becomes a manageable part of your investment.
If you're looking for more tips on property management accounting, check out our whitepaper on the best tips for simplifying this complex process.
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