Let’s Talk Taxes ... anyone buying a house this time of year beware ... May 1st approaches. Don't get stuck.
Real Estate …. Are the taxes for real?
By
Al Block, abr,gri,sres,qsc
Taxes, like them or not, they are here to stay. As you begin your home search and browse various property listings, whether online, or as provided by your Realtor, it IS NOT safe to assume what is in print is always what the taxes will be for you when YOU buy it. Let’s discuss the various reasons.
In the State of Michigan, and many other states, there are HOMESTEAD PROPERTY TAXES and NON-HOMESTEAD PROPERTY TAXES. Homes and condominiums that are classified as HOMESTEAD, typically means that the owner resides in the property and has claimed it as their principal residence. Under this classification, the property taxes are typically at the lowest rate. In contrast, if an owner does not occupy or claim it as their principal residence, it is referred to as NON-HOMESTEAD. This last classification is very typical for properties that are currently bank-owned or tenant occupied. An owner must own, occupy, and claim a property as their principal residence with their local assessing department prior to May 1st of each year in order to qualify for the lowest rate. So how does this affect you? Around this time of year, if you are purchasing a home that is currently NON-HOMESTEAD, the tax you may see on a property listing may lower as much as 35% upon you claiming a HOMESTEAD. Conversely, if you are not able to own, occupy, and file the essential document to claim your HOMESTEAD prior to May 1st, it is very likely you will have to pay all or a portion of the NON-HOMESTEAD rate for that year. The best people to discuss this issue with is your Realtor and/or the Assessor and/or Treasurer that has authority over the property in question.
Even if you are aware of the above tax classification, the taxes still may change again when you take ownership. Properties are taxed also based upon what the local tax assessor computes the value to be. To be very clear, this is what the taxing authority values the property at. The TAXABLE VALUE is a value at which property taxes are computed and billed by. The STATE EQUALIZED VALUE (S.E.V.) is what the tax assessor believes a property is worth. These two numbers have a relationship. The TAXABLE VALUE typically goes up every year by a small amount (cost of living index, etc.). However, the S.E.V. can go up and down but does not change what you pay in taxes UNTIL an ownership change occurs. At that time, what is the S.E.V. now becomes the TAXABLE VALUE for the new owner, thus typically raising the tax for the new owner. To estimate what your taxes will be when you make a purchase, your Realtor can research these numbers and give you some estimation of what the tax change may be for you. (You can contact the local Assessor or Treasurer and they should be able to provide you these numbers and some estimation as to how the “pop-up” tax may affect you.)
Last, another issue to consider is if the tax printed on a property listing is totally correct. At first glance, when researching taxes from a municipality’s website, the tax amount showing will reveal a total amount for the year. However, it is a good idea to verify the itemization of that number. For example, if a previous owner did not pay delinquent water bills or a ticket for a city ordinance violation, that cost will be placed on to the tax billing. This is more typical of bank-owned properties and those in the process of foreclosure. To find out the itemization, many municipalities show their itemized tax billing for each property online or are glad to discuss this topic over the phone or at their offices.