Inflation is on the rise, and it's affecting not just our grocery bills and gas prices but also our property tax bills. Homeowners in Michigan can expect to see larger-than-usual increases in their summer property tax bills, which will be sent out in July. And the trend is likely to continue next year, with even higher property taxes on the horizon.
According to Patrick Anderson, CEO of the Anderson Economic Group consulting firm, many homeowners will be shocked because they haven't experienced significant inflation for a long time. But with the recent surge in inflation, their property taxes are set to increase substantially.
How Inflation Impacts Property Taxes in Michigan
This year, Michigan's inflation rate adjustment for property taxes is 3.3%, the highest it has been in about 15 years. While this is less than the maximum allowed increase of 5% under Proposal A, it still represents a significant jump in taxable value. In previous years, homeowners might have seen an annual hike of around 1%. However, this year's increase will be more pronounced.
The increase is calculated based on the consumer price index over a trailing 24-month period and is determined by the Michigan Department of Treasury. The multiplier for the 2021 tax year was 1.4%, while it was 3.7% in 2007. This year's 3.3% rate is the maximum increase that can apply to a home if there haven't been any changes in ownership or property additions.
The Impact on Homeowners' Wallets
The actual cost increase will vary depending on the size and value of each home, as well as the location. For example, if your property taxes were $6,000 last year, a 3.3% inflation-adjusted increase would add roughly another $200 per year. This assumes no changes in millage rates or significant additions to the home.
To illustrate further, consider a typical Livonia home with a taxable value of $125,000 last year in a Livonia Public Schools school district. Based on a 3.3% inflation adjustment, the estimated annual tax bill increase for the 2022 tax year would be approximately $169. The taxable value of the home would rise to $129,125 after the adjustment.
Additionally, new homeowners often face higher property taxes compared to previous owners, particularly in a hot real estate market. The "cap" on property taxes is lifted when a home is sold, resulting in a higher taxable value for new homeowners. This can lead to significant increases in property taxes compared to longtime owners.
The Future Outlook
While the current increase is significant, experts predict that next year's property tax hike could be even larger. Given the current levels of inflation and the continuous rise in consumer price index, many expect that the taxable values homeowners will see in 2023 could reach 5%. However, the final calculation for inflation adjustment is subject to future data.
According to Kyle Jen, Director of Oakland County Management and Budget, the 5% level is a reasonable assumption based on the already reported inflation data. This means that Michigan homeowners are likely to face two consecutive years of substantial inflationary increases in property taxes.
Understanding the Adjustment Process
Michigan homeowners should understand how the adjustment works to anticipate future tax increases accurately. If a home is the primary residence, the taxable value cannot increase more than the change in the inflation rate or a maximum of 5%—whichever is less—if there are no property additions. However, building additions or selling the property can result in a higher taxable value.
It is essential to pay attention to the notice of the upcoming change in taxable value received each January. This notice provides an estimate of how property taxes might be affected, based on the previous year's tax rates. Anderson emphasizes that these notices should never be ignored or overlooked, as they impact not just the current year's taxes but also future years' taxes.
Conclusion
Michigan homeowners should brace themselves for higher property tax bills in the coming years. The recent surge in inflation has led to larger increases in property taxes, with a 3.3% adjustment for this year alone. Experts predict that next year's increase could reach 5%, resulting in two consecutive years of significant inflationary hikes.
It is crucial for homeowners to stay informed about the changes in taxable value and understand how the adjustment process works. By being proactive and aware, homeowners can better prepare for the financial impact of rising property taxes.
Remember, as inflation continues to impact various aspects of our lives, it's essential to stay informed and take necessary steps to manage our financial responsibilities.
