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Why is my Taxable Value increasing when my Property Value is decreasing?

This will explain how the taxable value of property can increase even if the property value has been decreased.

PROPOSAL A

On March 15, 1004, Michigan voters approved the constitutional amendment known as Proposal A. It was designed to limit the growth in property taxes by the Consumer Price Index (CPI) until ownership in the property is transferred. (The CPI is a statistic calculated by the State of Michigan that tracks the cost of living in Michigan). Before Proposal A, property taxes were based on the State Equalized Value (SEV), which can fluctuate from year to year. With the implementation of Proposal A, Property taxes are now based on Taxable Value.

TAXABLE VALUE

In 1994, all properties became “capped”. The property’s SEV then became the new Taxable Value.  From that point forward, Taxable Value can increase only three ways.

Transfer of ownership
Physical changes to the property
Change in Consumer Price Index (CPI) not to exceed 5%.

Every property in Michigan will have an annual increase on their Taxable Value based on the CPI or 5% (whichever is lower). The 2013 CPI is 1.6%

TRANSFER OF OWNERSHIP

When a transfer of ownership takes place on a property, the Taxable Value is uncapped to match the Assessed Value for the following year. From that point forward, it is recapped.

PHYSICAL CHANGES

Any change in Assessed Value due to a physical change will also affect the Taxable Value. Any loss in value would be subtracted, and any new value would be added after applying the CPI. All assessments are based on what is physically on the property as of December 31st. Most maintenance items such as roof, siding, windows, landscaping, etc, are not considered for physical additions to the property.

MARKET VALUE

The Assessed Value represents 50% of the Market Value or True Cash Value. Actual SALE PRICE of an individual property is NOT necessarily True Cash Value. Distressed sales, such as sales involving mortgage foreclosure or sales involving transfers to or from relocation companies are usually NOT considered as typical sales in the valuation of property for assessment purposes. The Assessed Value is based on all arms length transactions of very similar properties, usually by neighborhood, and usually over a two year period.

WHY IS MY TAXABLE VALUE INCREASING WHEN THE VALUE OF MY PROPERTY IS GOING DOWN?

Since 1994, property values have been increasing, usually by more than the annual CPI. The taxable values have also increased annually, but only by the CPI, thereby creating a difference between the Assessed Value and the Taxable Value. Even with a decrease in Assessed Value, there will more than likely still be a difference between the Assessed Value and the Taxable Value of your property. Only when there is no difference between the two will your taxable value decrease if your assessed value decreases.

PRINCIPAL RESIDENCE EXEMPTION

If you own and occupy your home as your principal residence, it may be exempt from a portion of local school operating taxes. You may check your percentage of principal residence exemption on your “Notice of Assessment”. To claim an exemption, you must complete the Principal Residence Exemption Affidavit and file it with the Assessor’s office by may 1st of the year of the claim. If you no longer own and occupy the property as your primary residence, you must rescind the Principal Residence Exemption with the Assessor’s Office.