Good News on Property Taxes
As you may know, two factors determine the amount of your property tax bill. One is the local millage rate. The other is the taxable value of your property – which is 50% of its market value. When you buy a home, the taxable value is 50% of its market value as of the end of the year. For example, if your home is worth $400,000 as of December 31, the initial taxable value will be $200,000.
As the worth of your home increases, so does its taxable value. But Michigan law caps the amount that the taxable value can be increased in any one year. Currently, the taxable value can’t go up more than 5% a year – or more than the rate of inflation, if that figure is lower than 5%.
If you sell or otherwise transfer your home, the process normally starts over for the new owner. The taxable value will increase to 50% of the home’s value in the year the home changes hands. This removal of the cap is called “uncapping.” Let’s say that over the years the market value of a $400,000 home has increased to $500,000. The new owner will start with a taxable value of $250,000.
Historically, this could have been a problem if you wanted to transfer your home or cottage to a close family member. The transfer might have triggered a large increase in the taxable value of the property – leading, of course, to a larger tax bill for the new owner.
Fortunately, the Michigan Legislature has solved this problem. You can now transfer a residential property to a close family member – or leave it to that person through a will or trust – without causing an uncapping.
Exactly what transfers qualify for this tax break? You can safely transfer residential property to the following relatives of you or your spouse:
- adopted child, or
And you’re not limited to just one person. For example, you can transfer your home or cottage to your two children, or to your brothers and sisters, or any other combination of the people listed here.
The attorneys at the Ann Arbor law firm of Hamilton, London, & Davis can help you make the most of this property tax break.