The impact of home improvements on property taxes

Written by Samantha SheltonNMLS 1647301Updated October 2026

Couple at a kitchen table reviewing finances with a room addition under construction behind them, weighing property taxes

Home improvements raise your property taxes when they raise your home’s assessed value, and in Michigan, new construction is added on top of the annual cap rather than squeezed underneath it. For 2026 that cap is 2.7%, the inflation rate multiplier the Michigan State Tax Commission set in Bulletin 14 of 2025, but a permitted addition goes onto your taxable value separately no matter what the cap allows.

The practical trigger is almost always a building permit. Projects that add livable square footage, add a bedroom or bathroom, or put a new structure on the lot get valued as new construction. Routine upkeep generally does not, and Michigan goes further than most states, naming 17 categories of normal repair and maintenance an assessor must leave out of your value until the property is sold.

Learn which home improvements raise property taxes, which ones are excluded by statute, how Michigan’s Proposal A math works, and what a higher tax bill does to your escrow payment. If you’re earlier in the process, start with our Homeownership guide.

Key takeaways:

Permits are the practical trigger: Projects adding square footage or a new structure are valued as new construction, and in Michigan the assessed value added is 50% of the improvement’s true cash value.
Michigan excludes routine upkeep by statute: 17 categories of normal repair, replacement and maintenance, from outside painting to a replacement furnace, stay out of true cash value on residential property until the home is sold.
The cap doesn’t protect you from additions: Michigan limits annual growth in taxable value to 5% or inflation, whichever is less, 2.7% for 2026, but additions land on top of that limit, and taxable value uncaps to the full state equalized value the year after a sale.

How are property taxes calculated?

Your property tax bill is your taxable value multiplied by your local millage rate, where one mill raises $1 per $1,000 of taxable value. Improvements matter only insofar as they move that taxable value, and Michigan builds it in three steps:

True cash value: The assessor’s estimate of what the property would sell for. This is the figure a new bedroom or finished basement moves.
Assessed value: Half of true cash value. The Michigan Constitution caps the ratio at 50%, and after equalization the same figure is the state equalized value, or SEV.
Taxable value: The lower of the SEV and the capped value. This is what your millage rate is applied to, and it carries the annual growth limit.

That last distinction is the one homeowners miss. Your SEV can jump the moment the market moves, but taxable value climbs slowly. Until you add something that didn’t exist before. Our guide to property tax assessments and how they work covers the notice and the appeal path.

Which home improvements raise property taxes?

Improvements that add square footage, add a bedroom or bathroom, or place a new structure on the lot are the ones that raise property taxes, because they’re valued as new construction rather than maintenance. Michigan law defines new construction plainly: property not in existence on the immediately preceding tax day and not replacing something damaged or destroyed.

Assessors commonly learn about that work through local permit records, which is why the permit is the practical trigger even though it isn’t the legal test. The legal test is whether something now exists that didn’t before; a permit makes it visible. Our guide to home renovation permits and what you need covers which work requires one.

Timing follows the calendar, not the invoice. Michigan sets tax day at December 31, so the assessor values your property as it stood at year end. Work finished during one year generally shows up on the assessment notice you receive the following spring.

Here’s how common projects sort out. Permit rules and assessment practice vary by municipality, so treat this as the starting point for a call to your assessor, not a guarantee.

Project	Permit typically required?	Typically reassessed?	Why
Room addition or second story	Yes	Yes	New square footage that didn’t exist before. The largest increase on this list.
Finished basement	Yes, electrical, plumbing, egress	Yes	Adds heated, livable area, valued below above-grade space.
Added bathroom	Yes, plumbing	Yes	Bathroom count is a direct input to residential valuation.
Deck, porch or patio	Usually	Often	Adds improved area at a modest value per square foot.
In-ground pool	Yes	Often	A permanent site improvement. The value added rarely matches what you spent.
Kitchen remodel, same footprint	Sometimes, electrical, plumbing	Sometimes	Turns on whether the assessor sees replaced finish or upgraded quality.
Roof, siding or furnace replacement	Sometimes	Generally no in Michigan	Named in the state’s normal repair and maintenance list.
Interior painting, flooring, countertops	No	No	Redecorating and new floor or wall surfacing are normal maintenance.
Landscaping	Usually no	Generally no	Rarely changes the assessment, but does add to your federal cost basis.

The tax answer and the resale answer aren’t the same. Some projects assessors ignore are the ones buyers care about most, see our renovation ideas to boost home value, and this summary of how assessors treat home improvements.

Which improvements don’t trigger a reassessment?

In Michigan, 17 specific categories of work are excluded from your assessment by statute, and the exclusion holds until the property is sold. Known as the Mathieu Gast Act, it directs the assessor not to consider the increase in true cash value resulting from expenditures for normal repairs, replacement and maintenance on residential property. The list is unusually concrete for tax law:

Exterior: Outside painting; repairing or replacing siding, roof, porches, steps, sidewalks or drives; masonry work; replacing awnings; adding or replacing gutters and downspouts.
Weatherization: Replacing storm windows or doors, and insulating or weatherstripping.
Systems: Complete rewiring; replacing plumbing and light fixtures; replacing a furnace, oil or gas burner, or automatic hot water heater; installing, replacing or repairing an alternative energy system up to 150 kilowatts or a whole-home generator.
Interior finish: Repairing plaster, inside painting or redecorating; new ceiling, wall or floor surfacing; replacing dated interior woodwork; removing partitions to enlarge rooms.

Two caveats keep this from being a loophole. The exclusion is deferred, not permanent. The value stays out until the property is sold. And it covers genuine repair and replacement: removing partitions to enlarge a room is on the list; adding a room is not.

Rebuilding after damage is handled separately and sensibly. Destroyed property comes off as a loss; when rebuilt, Michigan treats the work as replacement construction and limits the value added back to what the damaged property was worth before. Restoring a fire-damaged house to its former condition doesn’t hand you a tax increase for the privilege.

Accessibility work is the common question without a universal answer. Some states carve out ramps and lifts explicitly; Michigan’s list is specific and doesn’t name them, so ask your assessor before you build. More on how these choices fit your wider finances sits in our Taxes & Money hub.

How do state rules change the math?

Michigan limits annual growth in taxable value to 5% or the rate of inflation, whichever is less, then adds new construction on top of that limit. The statutory formula is the prior year’s taxable value, minus losses, multiplied by the lesser of 1.05 or the inflation rate, plus all additions.

For 2026 the State Tax Commission set the multiplier at 1.027, so the year’s capped value is the 2025 taxable value minus losses, times 1.027, plus additions. Because 2.7% is well under 5%, inflation is the binding constraint this year, and your taxable value is the lower of that capped figure and your SEV.

Read the formula carefully and the issue comes into focus. The cap governs how fast your existing house grows on the tax roll. It says nothing about a bedroom that didn’t exist last year. Additions enter after the multiplier is applied, which is why a permitted project can raise your bill in a year the cap would otherwise have held to 2.7%.

A worked example. Say you add a 400-square-foot bedroom-and-bath addition to a home in Waterford and the assessor puts the addition’s true cash value at $60,000. Assessed value rises by half of that, and that $30,000 enters your taxable value as an addition. At an illustrative total rate of 40 mills, the annual tax on the new space is $30,000 × 0.040, or $1,200 about $100 a month.¹ Michigan millage rates vary widely, so use the total rate printed on your own bill.

The other event that resets everything is a sale. Upon a transfer of ownership, taxable value uncaps the following calendar year and is set equal to the state equalized value, years of accumulated cap protection erased in one step. That’s why a seller’s tax bill is a poor guide to what a buyer will pay.

Other states cap differently. California’s Proposition 13 limits annual increases in a property’s factored base year value to 2% and reassesses new construction at market value on completion, a different mechanism reaching a similar destination. Rules change, so check our roundup of updates to property tax laws and confirm the current multiplier with your assessor.

How do you plan for a higher tax bill?

Budget for the tax increase during the design phase, not after the notice arrives, because the notice comes with a short appeal window and no negotiating room on the arithmetic. Three checkpoints do most of the work.

Before you start: Ask the assessor’s office how comparable projects have been valued locally, then pair that with your total millage rate for a defensible estimate before you sign a contract.
While the work is underway: Keep permits, contracts, change orders and paid invoices. Actual scope and cost are your strongest evidence in an appeal, and the same records establish your cost basis years later.
After it’s finished: Read the next assessment notice line by line, checking square footage, room count, bathroom count and finished basement area against reality. Record errors are the most winnable appeal there is, because you’re correcting a fact rather than arguing an opinion.

The escrow effect is what you’ll actually feel. If your taxes are escrowed, a higher bill doesn’t arrive as a lump sum. Your servicer runs an escrow analysis, finds the account short, and raises your monthly payment to cover the shortage and the higher ongoing amount. On the $1,200 example above, that’s roughly $100 a month plus a catch-up for months already billed at the old rate.

Improvements you can’t deduct now can still pay off at sale. The IRS treats the cost of additions and improvements as an addition to your property’s basis, which reduces your taxable gain when you sell. Publication 523 counts bedrooms, bathrooms, decks, garages, porches, patios, landscaping, roofs, siding and kitchen modernization; repairs that merely keep the home in good condition, painting, fixing leaks, filling cracks, don’t.² Own and use the home as your main home for at least 24 months of the 5 years before the sale and you can generally exclude up to $250,000 of gain, or $500,000 filing jointly. Keep the receipts and read IRS Publication 523 on improvements and cost basis.

What Michigan homeowners should know

Michigan’s system rewards staying put and punishes assuming the cap protects everything. Four numbers carry the practical weight.

The 2026 cap is 2.7%: Taxable value on an unchanged, unsold home can rise by no more than 5% or the inflation rate, whichever is less. The State Tax Commission set the 2026 multiplier at 1.027 in Bulletin 14 of 2025, issued November 18, 2025.
Additions sit above the cap: New construction is added after the multiplier is applied, so a permitted project raises taxable value regardless of how little headroom the cap allowed.
The principal residence exemption is worth up to 18 mills: A PRE exempts your principal residence from the local school operating millage, up to 18 mills. Claim it by filing Form 2368 with your city or township assessor; the deadlines are June 1 and November 1. Read the Michigan principal residence exemption rules and our homestead exemption benefits and filing guide.
Your appeal window is measured in days: The assessor must mail your notice of assessment at least 14 days before the March Board of Review meets, and that board must finish by the first Monday in April. For residential property you generally must protest to the March board first, then petition the Michigan Tax Tribunal by July 31.

One more quirk worth internalizing: the repair exclusion lasts only until the property is sold. Replace the roof, furnace, wiring and windows over fifteen years and none of it lifts your assessment, but the buyer’s assessment reflects all of it, on top of the uncapping.

How Align handles Michigan property taxes

The year after a Michigan home sells, its taxable value resets to half of the assessor's market value, so the seller's tax bill is not your tax bill. Samantha quotes the number you will pay, and she quotes it on the high side on purpose.

Veterans may owe far less. Michigan's Disabled Veterans Exemption removes property taxes on the home a qualifying disabled veteran lives in, and Samantha points eligible buyers to it.

See the Michigan uncapping study

Sources: Michigan Treasury, transfer of ownership and uncapping; Michigan Treasury, Disabled Veterans Exemption (MCL 211.7b).

FAQ: Home improvements and property taxes

Here are answers to common questions about home improvements and property taxes.

Do all home improvements increase property taxes?

No. Only improvements that increase assessed value do, and those are typically projects adding livable square footage, adding a bathroom or bedroom, or substantially rebuilding the structure. Routine maintenance and cosmetic updates, repainting, replacing flooring or countertops, new appliances, landscaping, generally leave your assessment alone, and Michigan names most of that work in a statutory exclusion list. Our guide to property tax assessments explains how the assessor reaches the number.

Does finishing a basement raise property taxes?

Usually yes, because a finished basement adds livable, heated square footage and almost always requires permits for electrical, plumbing and egress. The assessor will typically add value for the finished area, though most jurisdictions value below-grade space at a lower rate per square foot than above-grade space. Confirm what your municipality requires with our guide to home renovation permits.

How do I appeal a property tax reassessment?

File an appeal with your local board of review within the window printed on your assessment notice. The deadline is strict, and in Michigan missing the March board generally forfeits the year. Bring evidence: recent comparable sales, photos, contractor invoices showing actual project scope, and any assessor record errors such as wrong square footage or bathroom count. Many appeals succeed on record errors alone. Our Taxes & Money hub covers what else moves your bill.

Can I avoid a property tax increase after renovating?

You can limit exposure by focusing on projects that don’t add square footage or require permits, but skipping required permits is a bad trade, unpermitted work creates insurance problems, resale disclosure problems and enforcement risk. Most homeowners are better off budgeting for the higher bill and then confirming the new assessed value is accurate. If resale value is the goal, our renovation ideas to boost home value ranks projects on return rather than tax exposure.

The bottom line on home improvements and property taxes

Home improvements raise property taxes when they raise assessed value, and the dividing line is new construction versus maintenance. Additions, finished basements, extra bathrooms and new structures get added to your taxable value; painting, flooring, roofs and replacement furnaces generally don’t, and in Michigan 17 categories of normal repair are excluded by statute until the home sells. Michigan’s cap holds annual growth to 5% or inflation, whichever is less, 2.7% for 2026, but additions land on top of that cap, and a sale uncaps taxable value to the full state equalized value.

If you’re ready to finance a renovation or buy a home you plan to improve, talk to Align Lending, we’ll shop your scenario across our lender network and show you what the payment, the escrow and the options look like side by side. Call 248-506-5727 or start online today.

Footnotes:

1. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. The $60,000 true cash value, the 40-mill total rate and the resulting $1,200 annual tax are illustrations, not estimates of your property. Assessed values are determined by your local assessor and millage rates vary by community and by year. Return to text.

2. This is general information, not tax advice. Whether an expenditure adds to basis, whether you qualify to exclude gain on a sale, and whether you benefit from itemizing depend on your individual circumstances and on tax law in effect for the year in question. Consult a qualified tax professional about your situation. Return to text.

Sources: annual increase in taxable value limited to the lesser of 1.05 or the inflation rate, plus all additions, and uncapping to the state equalized valuation in the calendar year following a transfer of ownership, MCL 211.27a(2) and (3). 2026 inflation rate multiplier of 1.027 and the 2026 capped value formula, Michigan State Tax Commission Bulletin 14 of 2025, issued November 18, 2025. Assessment ratio of 50% of true cash value, Michigan Constitution of 1963, Article IX, § 3; state equalized value as 50% of true cash value, Michigan Department of Treasury. One mill raises $1 per $1,000 of taxable value, Michigan Department of Treasury. Nonconsideration of expenditures for normal repairs, replacement and maintenance on residential property until the property is sold, and the enumerated categories (a) through (q), MCL 211.27(2); Michigan Department of Treasury Bulletin 7 of 2020, Mathieu Gast Act. Definitions of “additions,” “new construction” as property not in existence on the immediately preceding tax day, “losses,” and “replacement construction” limited to the true cash value of the property damaged or destroyed, MCL 211.34d. Tax day of December 31 of the immediately preceding year, MCL 211.2. Notice of assessment mailed by first-class mail not less than 14 days before the meeting of the board of review, MCL 211.24c. March Board of Review completion by the first Monday in April, and the requirement that residential property be protested to the board of review before appeal, with a Michigan Tax Tribunal petition deadline of July 31 for residential real property, Michigan State Tax Commission and Michigan Tax Tribunal. Principal residence exemption from the local school operating millage up to 18 mills, Form 2368, and filing deadlines of June 1 and November 1, MCL 211.7cc and MCL 211.7dd; Michigan Department of Treasury. Additions and improvements added to the basis of the property, the chart of qualifying improvements, and the exclusion of repairs and maintenance that do not add to value or prolong life, IRS Publication 523. Exclusion of up to $250,000 of gain, or $500,000 for a married couple filing jointly, and ownership and use of the home as a main home for at least 24 months of the 5 years before the sale, IRS Publication 523. Limitation of annual increases in factored base year value to 2% and reassessment of new construction at market value upon completion, California State Board of Equalization.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Assessment practices, millage rates, inflation multipliers, exemption amounts and filing deadlines change and vary by property, municipality and tax year; confirm your figures with your local assessor and your assessment notice, and consult a qualified professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.