Mortgage glossary · Michigan
What is taxable value in Michigan, and why does it uncap after you buy?
On this page: How it is calculatedExampleThe four valuesFAQ
How taxable value is calculated
Three lines cover it. The first applies every year you own the home, the second applies once, the year after a sale, and the third turns taxable value into a bill.
Each year you own it
Taxable value = last year's taxable value × (1 + the lower of inflation or 5%)
Plus the value of additions, such as a new garage. It can never be higher than the state equalized value.
The year after a sale
Taxable value = state equalized value
This is the uncapping. From that year on, the cap starts again from the new number.
Your tax bill
Annual tax = taxable value ÷ 1,000 × your millage rate
Millage is set by your city or township, school district and county. Treasury’s estimator lists the rates.
An example: the same house, two tax bills
A home sells for $400,000. The seller bought it fifteen years ago, so their taxable value has been capped the whole time. The listing shows their tax bill, and that is the number most buyers plan around.
The year after the sale, taxable value resets to the state equalized value, about half of the assessor's estimate of market value. With an illustrative millage of 40 mills, the bill looks like this.
| Seller's bill | Your bill after uncapping | |
|---|---|---|
| Taxable value | $118,000 | $200,000 |
| Millage (illustrative) | 40 mills | 40 mills |
| Annual property tax | $4,720 | $8,000 |
| Monthly, through escrow | about $393 | about $667 |
A rough rule for planning: after uncapping, the annual tax runs about half the purchase price times your millage, divided by 1,000. At 40 mills that is about 2% of the purchase price a year. Your community's millage, and whether you file the Principal Residence Exemption, will change the number.
Why it matters when you buy
Lenders qualify you on the full payment, taxes included, and your servicer collects the taxes through escrow. If the payment was estimated from the seller's capped bill, the first escrow review after the uncapping can raise it by hundreds of dollars a month.
That is why Samantha quotes the post-uncapping number from the first conversation, and deliberately on the high side, so the payment you plan for is the payment you get.
Four values on a Michigan tax record, and which one is taxed
A tax record can show all four. Only one of them is multiplied by your millage.
| Value | What it is | Taxed on it? |
|---|---|---|
| True cash value | The assessor's estimate of what the property would sell for. | No |
| Assessed value | Half of true cash value, set by the local assessor each year. | No |
| State equalized value | Assessed value after county and state review, usually the same number. It is the ceiling for taxable value. | No |
| Taxable value | Capped while you own the home, reset to the state equalized value the year after a sale. | Yes |
Taxable value vs. assessed value
Assessed value
What the assessor says half your home is worth. It follows the market up and down each year, and it sets the ceiling, not the bill.
Taxable value
What you are actually taxed on. While you own the home it moves only by the capped amount, and it resets the year after you buy, then the cap starts again from there.
What changes the number
The Principal Residence Exemption
Exempts the home you live in from up to 18 mills of school operating tax. It does not carry over from the seller: file your own affidavit by June 1, or by November 1 for the winter bill.
Where the home is
Millage is set by the city or township, the school district and the county, so two homes at the same price a few miles apart can carry very different bills.
Additions
New construction on the property, such as an addition or a garage, is added to taxable value on top of the capped increase.
The kind of transfer
Some transfers, such as one between spouses, do not uncap. After a purchase, the new owner files a Property Transfer Affidavit within 45 days. The State Tax Commission’s guidelines list the rest.
Questions people ask about taxable value
Does taxable value uncap when I refinance?
No. A refinance does not transfer ownership, so the cap stays in place.
When will I see the higher bill?
On the tax bills for the year after the purchase: the summer bill issued around July and the winter bill around December. Your escrow account catches up at its next annual review.
Can I appeal it?
The uncapping itself follows state law. If you believe the assessor's estimate of market value is too high, the March Board of Review in your city or township is where you appeal the assessment that sets the ceiling.
Is the Principal Residence Exemption automatic?
No. The seller's exemption does not carry over. File your own affidavit with the local assessor after you buy.
Does a land contract uncap taxable value?
Yes. In Michigan the transfer of ownership happens when a land contract is signed, so taxable value uncaps the following year. Recording the deed at payoff does not uncap it again.
Keep going
Related tools and guides
Homebuying Budget Review
A budget tool that will not guess your taxes. It asks for the real number first, because that is the one that matters.
Open the toolMortgage escrow accounts
How your servicer collects taxes and insurance, and what happens at the annual review.
Read the guideLand contracts in Michigan
How a seller-financed sale works, and why it uncaps taxable value when it is signed.
Read the guideSources
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Align Lending LLC, NMLS #2041154, is a mortgage broker. Samantha Shelton, NMLS 1647301. Equal Housing Opportunity. Licensed in Michigan, Ohio, North Carolina, Florida, Louisiana and Texas. Program guidelines on this page are general and change over time; they are not a credit decision, a preapproval, a commitment to lend, or an offer of credit. Approval depends on your full application, the property and the lender’s current guidelines.
