Owning a home in Michigan can be an expensive endeavor. In addition to mortgage payments, homeowners in Michigan pay a significant amount in property taxes each year. Although the state's constitution provides for limits on yearly increases, Michigan has some of the highest property taxes in the country.

Average Property Taxes

Michigan's average property tax rate is 1.83%, which ranks it as the seventh-most expensive state in the country, as of 2016. State law prevents the annual taxable value of property from increasing by more than the inflation rate or by more than 5%, whichever is lower. This safeguard means that the assessed value of a home may be greater than its taxable value. If a homeowner adds improvements or renovations that increase the value of a home, then these limits on the taxable value of the property do not apply.

Michigan has four counties where the average effective property rate exceeds 2.0%: Genesee, Ingham, Macomb and Wayne. Wayne County, which is home to Detroit, has the highest average effective property tax rate at 2.76%. However, with a median home value of only $86,800, Wayne's median annual property tax payment of $2,398 ranks behind seven other counties: Washtenaw at $3,873, Oakland at $3,390, Ingham at $2,768, Livingston at $2,671, Macomb at $2,631, Clinton at $2,475 and Kalamazoo at $2,462.

Michigan has three counties where the average effective property tax rate is less than 1.0%: Benzle and Keweenaw have average effective rates of 0.99%, while Luce has an average effective rate of 0.98%. Luce boasts the lowest median annual property tax payment, at $778.

Comparing Neighboring States

Two of Michigan's neighbors have relatively high property taxes, while one has relatively low rates. Indiana, which borders Michigan to the south, has a relatively low effective property tax rate of 0.88%. Indiana's average annual property tax of $1,083 is less than half of the national average. On the other hand, Ohio, which also borders Michigan to the south, has property taxes that are higher than the national average, but lower than those in Michigan. Ohio has the 12th-highest property taxes in the nation, with an average effective property tax rate of 1.52%. Wisconsin, which shares a border with Michigan's Upper Peninsula, has some of the highest property taxes in the nation. The state ranks as the fifth highest in the country, with an average effective property tax rate of 1.94%.

Calculating Property Taxes

The state of Michigan determines property taxes by calculating the assessed value of a home. A local tax assessor determines the price at which a home would sell in the market, and the assessed value is 50% of this market price. For a new home purchase, taxable value always equals assessed value. However, since the state's constitution has restrictions on property tax increases, the assessed value of a home may be higher than its taxable value.

Once the state determines the taxable value of a home, it applies a levy of 6 mills to this amount. A mill is equal to $1 for every $1,000 of taxable value. In addition to the state levy, local governments levy additional mills. The state multiplies taxable value by the combined state and local millage rate to determine the property taxes that are due.

For example, a home with a market value of $100,000 has an assessed value of $50,000 ($100,000 times 50%). If the local millage rate is 20, then the total millage rate used to calculate the property tax bill is 26, which represents the state rate of six plus the local rate of 20. Therefore, the total property taxes due equal $1,300, which represents 26 times 50.

Michigan also has a rule known as the Principal Residence Exemption. This rule exempts a homeowner from paying the first 18 mills in school taxes, provided that the home is a primary residence. Therefore, homeowners may pay different rates within the same local jurisdictions, depending on whether their homes are primary residences.

Minnesota Property Tax Guide

Related Articles
  1. Taxes

    The 7 Best States For Property Taxes, and Why

    Understand why some states have high property taxes while others have low property taxes. Learn about the states with the lowest property taxes.
  2. Investing

    Use Real Estate To Put Off Tax Bills

    Find out how you can build wealth and reduce your taxes.
  3. Taxes

    9 States Where You'll Pay the Most in Taxes

    Which state you live in can mean thousands of dollars saved or lost in taxes each year. Here's a list of states to avoid when it comes to tax rates.
  4. Investing

    10 Best States to Own a Big House

    On top of the low property taxes and average housing costs, these states all tend to have great natural beauty and land worth building on.
  5. Taxes

    Sell Your Rental Property For a Profit

    Being a landlord can be taxing, especially when you want to sell. Find out how to reduce your burden.
  6. Investing

    Canada: A New Frontier For Real Estate Investors

    This property market is easy to access and provides profitable opportunities.
  7. Taxes

    How Does a Tax-Free Exchange Work?

    In regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
  8. Investing

    6 Tips For Protecting Your Home's Value

    New taxes, property values, appraisals, community changes and nearby abandoned foreclosures can all lower your home's value. Take proactive steps to protect it.
  9. Taxes

    Reducing Capital Gains Tax on Investment Property

    The 1031 exchange rules can help reduce or eliminate property gains taxes on investment property.
Frequently Asked Questions
  1. Why is the 1982 AT&T breakup considered one of the most successful spinoffs in history?

    Find out why the breakup of AT&T into a number of spinoffs called the Baby Bells was one of the most successful spinoffs ...
  2. How does the required rate of return affect the price of a stock, in terms of the Gordon growth model?

    Find out how a change in the required rate of return adjusts the price an investor is willing to pay for a stock. Learn about ...
  3. What is the difference between the cost of capital and required return?

    Take a look at the primary conceptual differences between an investor's required rate of return and an issuing company's ...
  4. What's the difference between the production cost and the manufacturing cost?

    Learn more about fixed and variable expenses incurred by businesses. Find out how production and manufacturing costs impact ...
Trading Center