I know! You might be wondering “how are real estate taxes so different from property taxes?” They both mean the same thing right? — well, maybe in a friendly conversation.
But now, you’ve become a landlord. So, it’s only imperative you know better since you’ll be paying a boatload in taxes at the end of the year.
Or maybe you’re the good citizen who doesn’t mind contributing his quota to society but simply wants to know how it’s applied — gather around too. In this article, you’ll learn about real estate taxes and personal property taxes.
- Real estate taxes and property taxes are used interchangeably in popular lingo, but mean different things.
- Real estate taxes in Michigan refers to the amount charged by the state for the valuation of your home.
- Personal property taxes are the levies you pay for moveable assets like equipment, furniture, and vehicles.
What Are Real Estate Taxes?
Real estate taxes are taxes charged on the assessed value of real property or land and anything attached to it, ergo your house.
Going by this definition, this also includes out buildings like the garage and mobile homes. The rule of thumb is that if moving it will destroy it, it’s a real property.
Real estate taxes are charged by state and local governments to run public services like road maintenance and public schools. And, often, more expensive homes receive higher tax rates, but it varies from state to state. It’s also why you’ll find the best public schools and amenities in suburbs and large cities.
How Real Estate Estate Taxes Calculated
The local tax assessor would multiply the fair market value (FMV) of your home by the tax rate in your locale.
So let’s say you have a home in Saint Clair County with an FMV that sums up to $470,000. It’s then multiplied by the county tax rate, which is roughly 1.370 percent currently. That puts your annual real estate tax at $6,439.
Property tax = FMV x Tax Rate (470,000 x 1.370%)
Annual tax = $6,439
Easy peasy, right?
The Mill Method
Tax assessors calculate residential property tax in Michigan through the millage method.
Here’s what it means…
It’s the rate at which property taxes are charged on a property. The government decides what the millage for each year will be — currently, 1 mill is equal to 1/1000 or 0.001 to a dollar. That puts one mil at 1 dollar to every 1 thousand dollars of assessed property value.
To arrive at your property tax, multiply the taxable property value by the mill levied in your area.
You can find the mill rates for your township by contacting the local tax assessor’s office or visiting their website. Michigan’s Alpha Listing shows the current listing of city and village websites in the state.
“Residential property taxes in Michigan are calculated by multiplying the total millage by the home’s taxable value, which should be 50 percent of its true cash value.”
What Are Personal Property Taxes?
Personal property taxes are those charged on moveable objects such as vehicles, furniture, and so on.
Also, personal or private property tax is charged annually and usually at the point of payment.
When you buy a car – new or used – you have to pay road tax annually at your local DMV. And the same goes for other private property.
How Real Estate Taxes Are Paid in Michigan
Once the number’s figured out, you’ll have to make annual payments to the local Inland Revenue Service (IRS). Also your real estate tax may be arranged with your monthly mortgage payments.
Why You’re Charged Real Estate Taxes
All property taxes – real and personal – go to the state or county for a well-oiled running of public affairs. That’s why we say “taxpayer’s money” whenever the government launches a project.
With property tax and other tax levies available to the counties, they can generate revenue to carry out their duties effectively. No butt kissing the federal government.
And here’s the thing. If property tax was abolished — as one Bob I know wishes — other tax rates like income and consumption tax would increase to cover up for it.
In essence, real estate taxes fund the essential services of the state and local governments. You’ll be contributing directly to keeping public services up and running. All state and county workers get their paychecks from these taxes as well.
If you’re still unsure, this statement by Walt Sorg about should clear things up:
“Everybody likes a tax cut,” Sorg said. “But when I dial 911, I want someone to respond. I want fire and police services and good roads. None of the cost of providing those things has gone down 50 percent.”
It’s your legal right to pay tax, but so is it the government’s duty to tell you how it’s spent.
Real Estate Tax Rate in Michigan
Michigan has an average property tax rate of 1.64%, varying from county to county.
Normal as this number looks, statistics prove otherwise.
In a poll by Balance.com, The Great Lake State is ranked third among states with the worst property tax rate. But better Michigan than New Jersey if you plan to own valuable property.
How to Save on Real Estate Taxes in Michigan
There’s no easy way to say it, but you’ll almost always pay your real estate taxes in full. But there are some surefire ways you can cut back a little on the bills.
Here they are:
1. Know Your Worth
Knowing the potential value of your home before the tax assessor comes in is helpful. While this method won’t directly save you tax money, it could be your refuge in a dicey situation. Look at it this way…
The tax assessor values a 3-bedroom condo at $430,000 while your 1-bedroom house in the same area scratches $400,000. That sounds absurd, right? But if you know your property’s worth, you can confidently call the assessor’s attention to this absurdity — and hope for the best.
You’ll receive a thirty-day notice from your local assessor to appeal the valuation. You’ll be among the two-percent who save hundreds to thousands of dollars by appealing their assessment. If you’re wondering if it might be a wild goose choose, over 60 percent of properties are overvalued according to National Tax Payer’s Union.
You can check out what your house is really worth by asking your real estate agent or comparing similar houses on platforms like Zillow, Trulia, and Open Door.
2. Limit Home Improvement Projects
Real property value rises with every home improvement you make, so does your tax numbers. So, consider if it’s worth it before you carry out renovation/upgrade projects like an in-ground swimming pool or a kitchen remodel.
For instance, you could choose to install a free standing hot tub instead of a pool. Do you catch the drift?
Sure, this sounds like an extreme way to live, but it speaks volume. You shouldn’t struggle to pay off the contractor on a remodelling project just to do the same with your taxes.
3. Check for Exemptions
Exemptions will save a ton of money if you qualify for one. The most obvious ones are tax exemptions for seniors, disabled veterans, and homesteaders.
In the Wolverine State, companies contributing to a greener and cleaner environment also enjoy tax exemptions. But that’s not your cup of tea I guess.
You can check out the list of tax exemption opportunities in Michigan and information on how to apply here.
What Class of Veterans are Exempt from Real Estate Tax in Michigan?
As a veteran myself – stationed in San Diego as a Naval Officer – I’m compelled to shed more light on property tax exemption for veterans.
The state grants tax exemptions to disabled veterans who were honorably discharged in battle. In the sad event of the comrade’s passing, the surviving spouse is also entitled to real property tax exemptions. To be clear, that’s a hundred percent tax exemption.
Active veterans in Michigan can also benefit from tax reliefs which may give servicemen exemption during service.
Can I negotiate Real Estate Tax in Michigan?
The first thing you should know is that you can’t negotiate tax rates. What you can do is negotiate the assessed value of your home if you feel wronged.
But here’s the catch…
Going this route isn’t just going to be a chit-chat with the tax assessor. Most likely, you’ll need a lawyer and the whole process can be costly.
Selling Your Home in Michigan
Finding the best deal for a home within a short period can be difficult. Even worse if you’ve prepared the house for sale.
Or have you Inherited a home with years of debt or endless renovation requirements? Perhaps you need to move for work and can’t wait months to sell off your house.
The solution is simple…
At Cash for Michigan Houses, we eliminate the ruthless waiting period of selling a home – and pay you the worth in cash. All you have to do is contact us and we’d make a valuation of your property. You already know what’s next: it’s cash season.