The Michigan Property Tax TRAP Most Home Buyers Don't See Coming

One of the most common surprises for Michigan homebuyers shows up a year after closing: a property tax bill much larger than the one the seller was paying. It isn't a mistake. It's a feature of Michigan law called uncapping.

The short version

Since voters approved Proposal A in 1994, the taxable value of a Michigan property can rise each year by no more than the rate of inflation or 5%, whichever is less, as long as the owner doesn't change.

Market values often rise faster than that. Over years of ownership, a gap opens between what a home is worth and what it's taxed on.

When the home sells, that gap closes. In the year after a transfer of ownership, the taxable value "uncaps" and resets to the home's state equalized value (SEV), which is generally half of its market value. The cap then starts again from that new, higher base.

A simple illustration

These numbers are hypothetical. Actual millage rates vary widely by city and school district.

• A home is worth about $400,000, so its SEV is about $200,000.
• The longtime owner's capped taxable value has crept up to only $120,000.
• At a combined rate of 45 mills ($45 per $1,000 of taxable value), the seller pays about $5,400 a year.
• After the sale, taxable value uncaps to $200,000. At the same rate, the buyer's bill is about $9,000.

Same house, same tax rate, a bill roughly two-thirds higher.

What buyers should do

1. Don't budget off the seller's tax bill. Ask your agent or the local assessor to estimate taxes based on the purchase price.
2. File your Principal Residence Exemption. If the home will be your primary residence, filing Form 2368 with your local assessor exempts it from a large portion of school operating taxes. Missing it can cost thousands.
3. File the Property Transfer Affidavit. Michigan requires buyers to file Form 2766 with the local assessor after a transfer. Late filing can bring penalties.

Why it matters for sellers, too

Long-time owners sometimes hesitate to move because a new home means a new, uncapped tax bill. That "lock-in" effect is real, and worth running the numbers on before you list.

Thinking about selling? Start with a free estimate of what your home is worth.