The End of January is Near: Time for a Real Property Tax Checkup

The End of January is Near: Time for a Real Property Tax Checkup

Article by Tom King

The start of a new year is a popular time for self-assessments, check-ups and resolutions.  Resolving to give your real property a tax checkup in late January or early February can not only provide assurance that your holdings are not being overly taxed, but it might also save you money in the current year and beyond.

As you know, every year in the state of Michigan, real property is assessed for taxes.  The assessment is determined by the taxable value of the property multiplied by the amount of mils determined by the various assessing units (a mil is 1/1000 of a dollar).  The taxable value may not be greater than, and is sometimes less than one-half of the fair market value (true cash value) of the property.  The reason it can sometimes be less is that our state laws do not allow the taxable value of a property to increase each year by more than the lesser of the rate of inflation as determined by Michigan Department of Treasury, or 5%.  This limitation on the increase of taxable value only applies during the time the property is owned by the same taxpayer.  As a result, in years when the true cash value of the property increases by more than the rate of inflation, it is likely that the taxable value will drop below one-half of the true cash value, as long as the property remains owned by the same taxpayer. 

For these reasons, it may be in your best interests to contact your local assessor’s office or look the assessor’s office data up online to determine what has been established as your property’s taxable value for that calendar year.  If you believe that the taxable value of your property when multiplied by two exceeds its fair market value, it may be appropriate for you to consider challenging the taxable value of the property as being in excess of one-half of its fair market value.

With regard to residential or agricultural property, this action must first be initiated at the local Board of Review which meets at the beginning of March.  If you are not satisfied with the result as determined by the local Board of Review (for residential or agricultural property), or in the event that you own commercial or industrial property (even if you didn’t go to the Board of Review), you must file an appeal with the Michigan Tax Tribunal to preserve your rights.  The Michigan Tax Tribunal filing deadline for residential and agricultural property tax claims is July 31st of the tax year involved (July 31, 2015 for the 2015 tax year).  The filing deadline for commercial and industrial property is May 31st of the tax year involved.  For residential and agricultural real property, if you do not go to the Board of Review, you may not file with the Michigan Tax Tribunal. However, there is no such Board of Review requirement for commercial and industrial real property. 

Particularly for real property where the amounts involved are smaller and to a lesser degree for agricultural, industrial and commercial property, you should determine the difference between twice the taxable value as established by the assessor and the amount that you reasonably consider to be the true cash value (fair market value) of your property.  Once you have determined the difference, you should divide that number by two, and then multiply the result by the estimated overall number of mils for all of the taxing jurisdictions which levy taxes in the city, township or village where the property is located.  This calculation will provide a good estimate of the potential annual tax savings if you are successful in your appeal. The tax rate utilized for the prior years’ taxes should be available to you for your jurisdiction from the county equalization department or the local assessor, and is a good way to estimate the tax rate which will be applied this year.  This estimate is necessary because not all of the tax rates are set in January.  The assessor’s office or the county equalization department should be able to give you this information over the phone. 

In order to determine the taxable value established for your property, if that information is not available on the local unit of government’s website, you may need to visit the assessor’s office.  If the tax savings estimate is small, you may choose to forego an appeal, even though you believe the value placed on your property is somewhat high.  On the other hand, in a single family residential appeal, if the dollars involved merit an appeal, you may want to hire a professional to assist you with the appeal.  For more modest amounts, you may want to try to do it yourself in the Tax Tribunal’s small claims division.  With regard to agricultural, commercial or industrial real estate and for multi-family residential real estate where the valuation issues are much more complicated than with the normal single family home, professional assistance is a necessity.

You should understand that with regard to any tax appeal, it is not an all or nothing matter.  Both the Board of Review and the Tax Tribunal are free to determine that your real property is worth less than the assessor believes it to be worth, but more than you believe it to be worth.  As a result, in any tax appeal, even if successful, you may not get every dollar of reduction in the true cash value (and the taxes owed) that you seek.  It is not unusual for the Tribunal to determine that the true cash value of property, for tax purposes, is somewhere between the positions of the assessor and the property owner. 

Whether or not you ultimately challenge the true cash value and taxable value established by the assessor for your real property, it is good idea each year to take a look at the taxable value established, multiply it by two, and determine whether or not you believe that it reasonably approximates the overall fair market value of your property.  Given that the taxable value each year is either increased or decreased based upon the taxable value established for the year before, it can be important for years in the future that you keep the current assessed and taxable values established by the assessor reasonably close to what you believe to be one-half of your property’s true cash value.

In most cases, giving your real property a tax checkup early in the year involves a modest investment of time.  And it is an investment that can assure your property is being properly taxed.  This simple action could save you money now, and for years to come.

Posted on December 30, 2014
Tagged as Real Estate, Tax Law