Gwendolyn purchases a home in Grand Rapids, Michigan. The county assessor's records show the following: assessed value = $180,000; state equalized value (SEV) = $180,000; taxable value = $112,000. Gwendolyn's agent explains that after the purchase closes, the taxable value will change significantly. Which of the following most accurately describes what will happen to the taxable value and why?
Correct Answer
D) The taxable value will reset (uncap) to $180,000, equal to the SEV, because a transfer of ownership triggers uncapping under Proposal A.
Under Michigan's Proposal A (1994 constitutional amendment), a property's taxable value is capped and may increase annually only by the lesser of 5% or the rate of inflation (CPI). However, upon a transfer of ownership, the taxable value 'uncaps' and resets to the state equalized value (SEV), which equals 50% of the assessor's estimated market value. In this case, the SEV is $180,000, so after Gwendolyn's purchase, the taxable value will reset to $180,000 — a significant increase from the prior owner's capped taxable value of $112,000. This can substantially increase the new owner's property tax bill.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A leasehold estate grants the right to possess and use property for a defined period of time, without conferring ownership.
A life estate is a freehold estate that grants ownership rights for the duration of someone's life.
Real property is immovable land and anything permanently attached to it, while personal property (also called chattels) is movable.
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