Property Tax Uncapping Overview

By: Christopher G. Rogers, Attorney

The foundation of property taxes is a concept defined as “transfer of ownership,” which is “the conveyance of title to or a present interest in property, including the beneficial use of the property, the value of which is substantially equal to the value of the fee interest.” MCL 211.27a(6). There are certain conveyances that are defined to be a “transfer of ownership” and there are certain defined “exceptions” from a transfer of ownership.

Further, there are three values attributed to your property each year: state equalized value, assessed value, and taxable value. Both state equalized value and assessed value are generally equal to fifty percent of your property’s “true cash value” (the price it may sell for in a private sale).

The taxable value of your property is initially equal to the state equalized value of your property in the calendar year after your property was transferred to you (absent an exception). Then, each year after that transfer, your taxable value is increased by the lesser of 1.05 or the inflation rate.

The result of long-term ownership in a market with rising real estate values is a disparity between your current taxable value (limited as described above) and your current state equalized value (increasing with property values). That disparity creates a planning opportunity for you to reduce the amount that your children may pay in future property taxes.

When there is a “transfer of ownership” of your property, the taxable value increases from its statutorily limited value to the state equalized value in the year after that transfer. This increase is colloquially referred to as “uncapping” the taxable value. Thus, one planning consideration in family property succession planning is whether the cap on the taxable value can be maintained to allow the new owner (your child or certain relatives) to pay property taxes based on your capped taxable value.

We would be happy to assist you and your family with any questions you may have about family property succession planning.

This article is for informational purposes only and is not legal advice.