Monday, December 10, 2007

Property Taxes

Property Taxes

I am often asked about the property taxes on a piece of real estate – it could be a home, or a condo, or a building site for future use.

Given the state of our market (which I’ve written about previously), there are likely to be a lot more questions about property taxes in the coming year. More specifically, since the overall value of most properties In the Ann Arbor area has gone down by 15% since our market peak in 2004, most of us will expect that our property taxes will go down by the same amount.

Au contraire! (pardon my French, there).

If you bought your home since 2004, then it’s likely that your property taxes will go down in 2008. However, if you’ve owned your home for a while, and have seen its value increase until 2004, then it’s possible that your property taxes will actually go up next year. How can this be?
In seeking an answer for this question, I found a helpful post by the City of Saline, which I’ve excerpted below.

What is the difference between the Assessed Value and the Taxable Value?

Each year the Assessing Office must calculate the SEV (Assessed Value) and Taxable Value of each property. In determining the SEV, the assessor identifies area neighborhoods and uses a 2 year sales study to analyze market values within each neighborhood, comparing the sale price of a property to its assessed value. The sales study period for the 2007 assessments was 04/01/04 to 03/31/06. A review of all arms length sales within each neighborhood for the required study period is used to determine individual Assessed Values.
The Taxable Value is the value to which the millage rate is applied, thereby determining your taxes. The Taxable Value on the property is said to be: “Capped” if the property owner has not had any additions or losses on the property or did not purchase it in the preceding year. The Taxable Value is calculated by adding the CPI or 5% (whichever is less) to the prior years Taxable Value. Proposal A intended to put a cap on the Taxable Value of property so that taxpayers wouldn’t be as affected by a strong economy and significant increases in valuation, the intention was to make changes to the Taxable Valuation more gradual by tying it to the rate of inflation.

Sales prices in my neighborhood have been decreasing. Will my property valuation decrease as well?

If you’ve owned your property for a significant amount of time, it is likely that your SEV exceeds your Taxable Value. If this is the case, a decrease in market value as determined by city sales studies, would result in a decreased assessed valuation and SEV. The Taxable Value however, is required by the Michigan Constitution to increase each year by the rate of inflation or 5%, whichever is lower. In the case of a long time property owner, the SEV could decrease, while the Taxable Value would increase. The Taxable Value cannot be higher than the SEV.

How does that impact my tax bill?

Because the taxes are based on the Taxable Value rather than the SEV, even with a decrease in the SEV, the taxes could still go up.

I just bought my house. Will the assessed value automatically be half of what I paid?

By state law, a home’s Assessed Value is not half its purchase price, but half of its market value. The study period and process identified in paragraph 1 is used to determine market values. The Assessor and the Board of Review must follow the same procedures for determining the Assessed Value (SEV) of properties that have experienced a “transfer of ownership” as are used for properties that have not experienced a “transfer of ownership”.

The “Bottom Line”?

If you’re wondering about your specific property tax situation, feel free to give me a call. I’d be happy to help explain your options and advise you how best to move forward.

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