High Property Taxes in Detroit 48228 - Seeking Veteran Investor Advice

[Abdul Aziz Tambadou]

Hello Fellow Investors,

I have a concerning situation with my Detroit property (48228) and could use some guidance from experienced local investors. Here are the details:

• - Property value: $70K
• - Square footage: 943 sq ft
• - Summer tax bill: Nearly $3,000
• - Comparable properties: Similar homes (1,300 sq ft) are only paying $940-$1,100

This seems significantly out of line with neighboring properties. I've noticed homes 30% larger than mine are paying about 1/3 of my tax amount.

I know I missed the appeal window. Has anyone successfully appealed or reduced their property taxes in Wayne County? What was your strategy? Any recommendations for tax professionals who specialize in Detroit properties?

Thanks in advance for your insights!

[Greg Scott]

I see you are not from Michigan.  Understanding Michigan property tax laws may explain what you are seeing.

In Michigan, property taxes reset upon sale and then are capped at CPI.  If you look at the tax assessment, there will be an assessed value and the taxable value.  Right after a sale, they will be the same.  As time passes, usually assessed value goes up faster than taxable value.  If a property has been owned by the same owner for a long time, the taxable value could be significantly below assessed value.  In short, it is highly possible a much more expensive neighboring home could be paying less property tax.

What is much more relevant is comparing assessed value to assessed value.  If the larger home has a lower assessed value, you may have an argument.  Given the bureacracy and corruption of the city government, I recommend hiring an experienced tax attorney to fight any assessment.

[Arsen Atanasovski]

Blue County = High taxes, pretty simple :)

at $300 a month in taxes that’s a cash flow killer, you will need to go to the board next year and request an adjustment if possible, you may get granted but you will need to have a good report presented to the board with comps that are very similar to yours, but again it will be difficult because your property uncapped and it will never go back. 

[Drew Sygit]

@Abdul Aziz Tambadou we assist our clients with tax appeals.

Read more about how Michigan Property Taxes work below:

Michigan has some of the most complicated property taxes in the USA. Here’s what to know.

State Equalized Value versus Taxable Value

Back in 1994 Michigan passed the Headlee Amendment:

(http://www.legislature.mi.gov/(S(k5m2va1uyfgwtbyjf4nqb1bx))/mileg.aspx?page=LoadVirtualDoc&BookmarkID=6536)

that capped annual increases to the Taxable Value of a property to the lower of 5% or Michigan's Cost of Living increase. This was done to protect senior citizens on fixed incomes from being forced to sell their homes due to unaffordable property tax increases.

Since the passing of this amendment, all properties in Michigan have two property tax values associated with them:

1. State Equalized Value (SEV): supposedly equal to 50% of the market value of a property, not based on recent sales price.
2. Taxable Value: the SEV annually capped as long as there is not a transfer of ownership.

City Assessors are charged with determining how much property values have changed each year. Since they can't do each property individually, they use comparable sales to make broad generalizations to determine percent changes. Then these are applied to all properties in that area of the city.

Property owners get an annual update on their SEV & Taxable Values with their city property tax bill, typically sent in December.

So now, the city assessor tracks the SEV, but homeowners are taxed based upon the capped Taxable Value. These two numbers diverge over time as the SEV increases with property value, but the Taxable Value is capped. The Taxable Value is uncapped and equated to the SEV upon a sale or other transfer of property ownership, with limited exceptions.

Homestead versus Non-Homestead Millage Rates

Counties & cities in Michigan are allowed to set their own millage rates, with one restriction – a primary residence (Homestead) is exempt from up to 18 mills of school taxes on their Homestead property. A property qualifies as Homestead for this exemption if an eligible owner files a Principal Residence Exemption (PRE): https://www.michigan.gov/taxes/0,4676,7-238-43535_43539-210891--,00.html#:~:text=Section%20211.7cc%20and%20211.7,purposes%20up%20to%2018%20mills.

Many investors have gotten an ugly surprise when they bought a property that was a primary residence of the seller for the last 20 years. The removal of the Taxable Value cap and the switch to Non-Homestead millage rates can double, even triple, the property taxes. By the way, the cutoff date is June 1 of each year for these changes.

City & County Tax Bills

Most Michigan properties receive TWO annual tax bills - one from the city and one from the county. Many banks handling tax escrow accounts for mortgages have mistakenly thought there was one tax due twice/year or totally missed one of the taxes.

Investors should research the SEV and the Non-Homestead property tax millage rates to project what the property taxes will be after adjustment.

You can use this tool to estimate future property taxes: https://treas-secure.state.mi.us/ptestimator/ptestimator.asp

[Henry T.]

In Seattle no house pays under 5k/yr. I originally paid $250/yr, now its $10,000/yr and rising. Yeah, ouch! Hire someone that will do the footwork to file an appeal. I've heard theyre worth it. I filed my own appeals but only successful 1/3 of the time. Assessor tells me many people file every year. Its your right to appeal, you should do so if you have the time. Be professional. Have good data and comps.  Funny, they never mention property taxes when talking about housing affordability. Go figure.