Computing your taxes and interpreting your property assessment

If you own a home in Ann Arbor you probably received your updated property assessment in the mail yesterday. (Homeowners in Ypsilanti received theirs earlier this week.) A client that I helped buy a home last year asked me to help interpret hers, and it occurred to me that it is a great time for a little tax tutorial. Let's say, for simplicity's sake, that last year you bought a home for $200,000. When you opened your envelope yesterday you learned that your new SEV (State Equalized Value) and Taxable Value are $100,000. Often these amounts are valued at approximately half the purchase price the year following the transfer of ownership, however, this is not always the case. It depends on your overall neighborhood market data. The State Equalized Value is thought to be half the market value of your home and adjusts yearly based on neighborhood sales. The Taxable Value, as a result of Proposal A, is capped at 5% per year or the rate of inflation, whichever is higher. This is why these two values are more different the longer one has owned their home. It is very important when you are preparing to buy a home that you are informed not about what the taxes are now, but what they will be when you buy the home. If the current sellers have owned the home for a long time it is likely that the taxes will go up quite a bit. Don't get into a situation in which you will be surprised when you get your first bill. Here's how you calculate your taxes: Take the Taxable Value (or if you are buying a home you can use 1/2 the list or purchase price to give you a rough idea) and multiply it by the tax mills in the community where the home is. Ann Arbor's 2007 tax rate, for example, is 46.0373 mills. In the example above, the home was purchased for $200,000. The Taxable Value will be approximatley half of that: $100,000, multiplied by .0460373. Your taxes will be approximately $4603.73 per year. Happy computing!