Winning Another Property Tax Appeal

Mrs. C. and I bought an investment property back in November for $19,000.  In January all of the local government taxing authorities send out an updated yearly assessment on real estate for tax purposes.  When I received ours for this property my jaw hit the floor.  They had it assessed at being worth $35,200.  Since I just paid $19,000 for it, I felt that the house was massively over assessed.  Since this is an investment property rather than a principal residence over assessment is much more harmful because in Michigan there is an additional 18 mill tax for non primary residences.  For the fourth time I decided to challenge my assessment and I ended up winning!

The Property Tax Assessment:

The property tax assessment I received showed the assessed value at $17,600.  In Michigan the assessed value is supposed to be 50% of what the market value is, implying a market value of $35,200. As much as I would have liked to have purchased this house and had $15,000 of instant equity due to my excellent negotiating skills, I was sure this was not case.  Maybe the house could sell for high 20s, but certainly not $35,000, but hey, if the assessor is willing to write me a check today I’d happily sell the place and even give him a 10% discount.

The Property Tax Appeal Process:

I filled out form 618, L-4035 Petition to Board of Review, which is pretty straight forward. In addition to filling out the form I provided additional documentation for my case.  I included a copy of my buy/sell agreement and I printed out the MLS listings of 2 houses on the same street that helped make my case. My argument was that the house as it stands is worth $20,000.  1 was a very similar home down the street listed for $24,000 and another was an identical home next door to our property that had a 1 bedroom addition on the back, which was listed for $26,000.  If a house next door with 1 more bedroom is listed for $10,000 less than what your assessment is, you have a pretty good case. All I had to do was put these documents in an envelope and send to the assessors office.

There is only a small window of a few weeks in March that you can actually submit the Petition to Appeal your property taxes, so it is important to get the form sent in right after receiving the yearly property tax notice.  If you feel you would be more compelling in person, most townships and cities meet a few nights during this time period to hear thes tax assessment appeals.  The timing just hasn’t lined up with my schedule, so I have always just sent the form in the mail.

Winning Another Property Tax Appeal:

About a month later I received their answer in the mail.  They had dropped the assessment from $17,600 to $10,000!  The local property tax review board gave me the full reduction I was seeking.  For 30 minutes of my time and the cost of a stamp I saved $384 per year, every year going forward. My taxes dropped from $889 to $505, a reduction of 43%.  All 3 of the board members voted to lower my assessment and listed under reason for board action: “Over assessed for area”.  My petition was #79 on their list. With several thousand parcels in the township it is apparent that only a very small minority of people appeal their assessments.

In Michigan you really only need to win once because they can only increase your taxable value by 5% OR the rate of inflation, whichever is lower.  They can monkey with the assessed value all they want, but it won’t change the taxes paid until the property is sold.  For example, this year my railroad bed property jumped in its assessment from $3,700 to $13,700! Because they are limited in increasing the taxable value though my taxable value only went up to $3,788.

Filing a property tax assessment appeal for every future property will be part of my routine to ensure that I am not overpaying on property taxes.  I’m planning on purchasing a vacant lot in a different township this summer that is ridiculously over assessed, like by a factor of 10.  Hopefully I will be able to buy this property and negotiate the assessment back to reality.

Have you ever filed for a reduction in your property tax assessment? How did the process go? Did you win? There is no downside to filing a property tax assessment appeal, either they do nothing or they lower your assessment,  all you risk is a few minutes of your time and the cost of a stamp!

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 uses the free tool Personal Capital to track his net worth and posts quarterly updates on his finances. Check out the Action Economics archives section for all past posts.

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