How To Win A Property Tax Appeal In Michigan

I just successfully petitioned my local board of review to reduce the property tax assessments on 3 of my rental properties resulting in a yearly savings of $2,853 a year, every year, for as long as I own the property.  Here’s my strategy for winning a property tax appeal in Michigan

The Process For A Property Tax Appeal In Michigan:

In Michigan the individual townships and cities are responsible for property assessment. Each year they re-evaluate all properties in the district and send out a notice to the property owners in later February / Early March. They are required to mail the notices out 10 days before the board of review hearings.  This gives people a very short time to prepare if they want to challenge.  I believe that 99% of people who receive this notice just throw it in trash.  My township had 3 board of review meeting times available, however if you can not make the meeting you can send in a paper appeal.  This is the route I chose to go this time, and the same route I have successfully used in the past.

With only 10 days to receive the letter, analyze what it states, and prepare an argument, most homeowners will be caught off guard by this notice and won’t be able to challenge it.  When my letter arrived in the mail there was only 5 days remaining on this window.

To add to the confusion in Michigan the taxable value and assessed value are both supposed to be half of what the true market value of the home is. This is not stated anywhere on these notices.  For example a home worth $200,000 should have an assessed value of $100,000.  For your average home owner they will see this and think that they are actually getting a good deal on their assessment and not rock the boat.  If you think your house is worth $200,000 and the assessed value says $175,000 you would probably not argue it.  In reality, you are being taxed on $350,000 in value!

Michigan Prop A: Cap On Property Tax Increases

In Michigan a bill was passed in 1994 called Proposition A.  What prop A does is it limits the amount property tax assessments can be increased each year to either 5% or the rate of inflation, whichever is LOWER. This creates 2 separate tax assessments.  Although they can only increase what you are taxed on by the rate of inflation or 5%, they can still state that the house has increased in value, so you have an assessed value and a taxable value on these statements.

An Assessed value is what they believe the house is worth and can increase by any amount in any year.  The taxable value is the amount that they can levy taxes on. This is the amount that has been limited by Prop A.

For example, you bought a house for $50,000 and it is assessed at being worth $50,000.  Your taxable value and assessed value are the same.  Now lets say you have lived in the house for the past 5 years and inflation combined has only ran 2% total, while the township claims that houses in the area have doubled in value.  The township can now state the assessed value is $100,000 and the taxable value is $51,000. You will only be taxed on $51,000.

If there is a sale of the property the assessed value can reset.  Here’s where I was misinformed. I thought that when I house was sold the assessed value automatically reset to the purchase price of the home, this is not the case.  The township can choose to assign whatever value they want to the assessment. In the above example, regardless of what the sale price of the house is, the township can easily say that the new assessed and taxable value are both $100,000.  Alternatively they could choose to bump it up substantially to $150,000 each just for the fun of it, regardless of the purchase price. So what if you purchased the house for $70,000 and they are saying it’s worth $150,000?  This is an extreme example, but it happens.

Now this is even worse for people who own property that is not their primary residence.  In Michigan there is an extra 18 mill tax (0.9% of market value) on non homesteaded property.  depending on the taxing authority you are under this could be anywhere from a 40% to a 100% increase in taxes over a homesteaded property.  Obviously if a house is your primary residence make sure that it is recorded as being homesteaded. Having a non-homesteaded property makes it even more important to challenge an assessment that is too high.  Okay, so we’ve talked about how the system works, about how it can be confusing to people, and about who is likely to get screwed.

The Property Tax Appeal Process In Michigan:

For Michigan there is a 1 page form, form L-4035 to fill out when you want to appeal the assessment of your property.  On this form there is only 1 tiny box to make your case about WHY you believe your assessment is too high.  In addition to filling the form out I typically include a copy of the sale document for the house showing what I paid for it, printouts of what other houses in the area that are comparable have sold for in the past 6 months, AND tax assessments of nearby houses for comparison.  In the past 12 months I have purchased 3 houses and all were greatly over assessed.

I send the appeal to the local review board and wait.  Typically 3 people make up the review board and they will eventually respond by accepting, modifying, or denying the request.

My Property Tax Appeals:

House 3: This house here.  I purchased this house for $20,000 and put $12,000 into the rehab on it.  They had it assessed at a market value of $47,800 (Assessed value of $23,900).  I filled out the form, attached a copy of my sale record, stated the amount of money I invested in it and provided 2 recent sale comps.  I asked for them to drop the assessed value to $15,000 and they did.   This dropped my yearly taxes on this property from $1,207 to $757, a savings of $450 per year.

House 4: This house here.  I purchased this house for $24,000 and put $8,000 into it.  They had the house assessed at a market value of $91,200 (Assessed value of $45,600). This house had an assessed value of $38,000 when we purchased it, but since there was a sale they decided to up it to $45,600!  I decided to not be as aggressive on this one and rather than asking for it to be dropped to my $32,000 total investment I asked for it to be dropped to a market value of $40,000.  They gave me exactly what I asked for and dropped it to an assessed value of $20,000.  As with the above property I included the settlement statement from my purchase on the house, I detailed my costs for improvements, and added comparable sales in the area.  This dropped my taxes from $2,302 to $1,010, a yearly savings of $1,292.

House 5: This house, our most recent purchase.  I was worried about this one because since we had just purchased it at the end of February we would not receive the annual statement in the mail.  I decided to fill out the state form anyways and use the previous years Assessed value that I got from the Beacon property mapping website.  This house was assessed with a market value of $82,000 (assessed value of $41,000).  I purchased the property for $35,000 and at the time of the appeal I had put only a few thousand dollars into it.  They dropped the assessed value down to $19,000.  This dropped my taxes from $2,070 to $959, a savings of $1,111 a year.  For this house in addition to using my purchase document and comparable sales I also included the tax assessment of my neighbors house.  His house is twice the size of mine, and appears to be in nicer condition and was assessed at a lower value.

In total sending out 3 letters and spending 2 hours researching and printing documents saved me $2,853 on my taxes for this year and every year going forward.  This process gives me a major strategic advantage over my competition.  On the last 2 properties I effectively increased my profit per property by $100 a month.  That’s real money.  To put this in perspective to generate $2,853 from a retirement account with a 4% withdrawal rate I would need to have $71,325 invested! That’s the value I received from appealing my property taxes….Actually, it’s higher than that because the $71,325 in a traditional retirement account would be subject to state and federal income tax, whereas this is tax free savings.

Previously I had another rental property assessment dropped from $17,600 to $10,000 dropping my yearly cost from $889 to $505, saving me $384 per year.

I also had my 3 railroad bed parcels dropped from a combined assessed value of $14,700 to 3,700 dropping my cost from $336 per year to $85 per year saving me $251 per year.

With everything combined I am saving a total of $3,488 per year on property taxes! At a 4% withdrawal rate I would need $87,200 invested to replace that amount of income. My property tax appeals were reviewed on the final meeting and my numbers were in the low 90s.  If only around 100 properties had appeals done, out of several thousand parcels, then the majority of us are leaving money on the table.  With prop A you have nothing to lose except the cost of a stamp,  appeal your tax assessment this year!

Have you ever appealed your property tax assessment?  What results did you get? I recommend checking out the book Build A Winning Property Tax Appeal: Put Facts and Figures Together! for more information on how to win a property tax appeal.

John C. started Action Economics in 2013 as a way to gain more knowledge on personal financial planning and to share that knowledge with others. Action Economics focuses on paying off the house, reducing taxes, and building wealth. John is the author of the book For My Children's Children: A Practical Guide For Building Generational Wealth.

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