What First-Time Homebuyers in Michigan Need to Know About Property Tax Adjustments

Buying a home is an exciting milestone, but for first-time homebuyers in Michigan, there’s an important financial factor to keep in mind—property tax adjustments. Many buyers are caught off guard when their property taxes increase after purchasing a home. Understanding how property taxes work and why they adjust can help you prepare for these changes and budget accordingly.

How Michigan Property Taxes Work

In Michigan, property taxes are based on a property’s taxable value, which is determined by the local assessor. This taxable value is different from the state equalized value (SEV) and the market value of the home. Michigan law caps annual increases in taxable value at 5% or the rate of inflation, whichever is lower, as long as the property remains under the same ownership. However, once the property changes hands, the taxable value is uncapped and reset to the SEV, which can lead to a significant increase in property taxes for the new owner.

Schedule a free consultation to learn how this impacts your home purchase.

What Happens When a Property Changes Hands?

When a home is sold, its taxable value is reassessed in the following tax year. The new taxable value is reset to equal the SEV, which is typically around 50% of the home’s market value. If the previous owner had lived in the home for many years, their capped taxable value was likely much lower than the SEV. As a result, the new homeowner may experience a substantial increase in property taxes.

Schedule a free consultation to discuss your specific situation.

Example of a Property Tax Adjustment

Let’s say you purchase a home with a market value of $250,000. The previous owner’s taxable value was $100,000 due to years of capped increases. However, after the sale, the taxable value resets to the SEV, which could be around $125,000 (assuming SEV is 50% of market value). This increase means the new homeowner will pay taxes on $125,000 rather than $100,000, leading to a noticeable jump in their property tax bill.

How to Prepare for a Property Tax Increase

• Research the Current and Potential Future Taxable Value: Ask your real estate agent or local assessor’s office for the current taxable value and SEV to estimate what your new tax bill might be.
• Use Online Tax Calculators: Many Michigan municipalities provide online property tax calculators to help estimate future tax liabilities.
• Plan for Escrow Adjustments: If your mortgage lender escrows property taxes, be aware that your monthly mortgage payment may increase when taxes adjust.
• Consider Local Millage Rates: Property taxes are calculated by multiplying the taxable value by the local millage rate. Understanding your area’s millage rate can help you better estimate costs.
• Apply for Homestead Exemption: If the home will be your primary residence, applying for the Principal Residence Exemption (PRE) can reduce your tax burden by exempting you from certain school taxes.

Schedule a free consultation for personalized property tax planning advice.

Final Thoughts

For first-time homebuyers in Michigan, property tax adjustments can be an unexpected expense, but with proper planning, you can avoid surprises. Understanding how taxable values reset upon transfer and taking proactive steps to estimate future costs will help you budget effectively for your new home.

If you're in the process of buying a home, consult with your real estate agent and local tax assessor to get a clear picture of your potential property tax obligations. Schedule a free consultation today to ensure you're financially prepared for your home purchase. A little research now can save you from financial surprises down the road!