Question

Property taxes are an expensive part of owning a house as well as renting. Explain how property taxes work in Michigan.

Answer 1

Michigan has some of the highest property tax rates in the country. The Great Lake State’s average effective property tax rate is 1.64%, well above the national average of 1.08%.

On the other hand, homeowners in Michigan are protected by the state constitution from significant swings in their property taxes. The taxable value of property in Michigan can increase by no more than 5% from one year to the next. This means that even when home values are surging upwards, taxes will remain relatively steady.

There are two different numbers that reflect your home’s value on your Michigan property tax bill. The first is assessed value.

In Michigan, the assessed value is equal to 50% of the market value. Local assessors determine how much a given property could sell for on the market, usually by looking at factors such as size, features and the prices of recently sold comparable properties. That number is then multiplied by 0.5 to reach assessed value.

If you buy a new home taxable value (the amount your taxes are based on) is equal to assessed value. From then on, however, taxable value does not necessarily have to equal assessed value. In fact, taxable value is often lower than assessed value.

That’s because the Michigan State Constitution limits the growth of taxable value to 5% or the level of inflation, whichever is lower. Thus, if your home’s value increases by 10% but inflation is only 2%, your taxable value will be lower than assessed value.

However, if you sell your home or make improvements such as adding a porch or a swimming pool, assessed value can increase by more than the cap. Regardless, taxable value will never be higher than assessed value.

Tax rates in Michigan apply to your property’s taxable value. The state government levies a statewide tax of six mills and additional rates are set by local government tax authorities such as city governments and school district.

Tax rates in Michigan are expressed as mill rates. A mill is equal to $1 of tax for every $1,000 of taxable value. For example, if your total tax rate is 20 mills and your taxable value is $50,000, your taxes owed would be $1,000 annually.

Homeowners living in their principal residence in Michigan are eligible for the Principal Residence Exemption. This exempts the home from the first 18 mills in school taxes. Thus, different rates can apply to nearby properties depending on whether they serve as a principal residence.

Because of the complexity of Michigan’s property tax rules, when comparing property tax rates it is useful to look at effective tax rates. An effective tax rates is the annual amount paid as a percentage of the home value. The table below shows the average effective property tax rates for every county in Michigan. Average rates are calculated as the median annual tax payment in the county divided by the median home value.