Does buying a house in Michigan uncap your property taxes?

The short answer

Yes. Under Proposal A of 1994, Michigan property taxes are based on taxable value, not on the seller's old capped number forever. When a sale is a "transfer of ownership" under MCL 211.27a, the taxable value uncaps in the calendar year following that transfer.

In that uncapping year, taxable value is set equal to the state equalized value (SEV). SEV is generally 50% of the property's true cash value after equalization. After that year, the cap returns: taxable value can rise by the inflation rate or 5%, whichever is less, plus additions, until the next qualifying transfer.

That is why the tax figure on a listing can understate what you will pay. The seller may have owned the home for years under the cap. Your bill can jump even if the millage rate does not change. If your lender escrows taxes, the escrow part of your payment can rise months after closing when the higher bill arrives.

What Proposal A capped, and what it did not

Before Proposal A, Michigan property taxes were based on state equalized value (SEV), so higher market values raised every owner's tax base. Voters approved Proposal A on March 15, 1994. It created taxable value as the base for the tax bill and limited how fast that base can grow while the same owner keeps the property.

Assessed value is still set each year by the local assessor as of Tax Day (December 31 of the prior year). The Michigan Constitution says assessment may not exceed 50% of true cash value (usual selling price). County and state equalization adjust assessed values into SEV so assessments stay near that 50% standard.

Taxable value is different. For a continuing owner, it is the lesser of SEV or capped value. Capped value starts from last year's taxable value, subtracts losses, multiplies by the inflation rate multiplier (capped so it cannot exceed 1.05), and adds additions. The State Tax Commission publishes the inflation rate multiplier each year.

The cap protects the current owner. It does not travel with the house to you. After a qualifying sale, you start from today's SEV, not from the seller's lower taxable value.

When uncapping hits your tax bill and escrow

Uncapping is timed to the calendar year after the transfer, not to your closing anniversary. A purchase in 2026 generally affects the 2027 taxable value. The assessor does not have authority to refuse to uncap when a transfer of ownership occurred (State Tax Commission Bulletin 20 of 2017).

Many purchase loans collect property taxes and homeowners insurance in escrow. At closing, that estimate often starts from the current tax bill. If the property has not yet uncapped, that bill still reflects the seller's capped taxable value. Your Loan Estimate and Closing Disclosure can look fine based on that number and still leave your escrow short once the uncapped bill arrives.

The higher amount often shows up when the next Notice of Assessment arrives, when a summer or winter tax bill uses the new taxable value, or when your mortgage servicer runs an escrow analysis and finds a shortage. The servicer may let you pay the shortage in a lump sum, spread it over future payments, or both. The regular monthly escrow collection can also rise so the next year's higher tax is funded.

A fixed-rate loan locks the interest rate and the principal and interest schedule. It does not lock property taxes or insurance. Tax proration at closing divides the current bill between seller and buyer for the closing year. It does not freeze your future taxable value or stop uncapping.

PRE, forms, and deadlines after you buy

If you own and occupy the home as your principal residence, Michigan's Principal Residence Exemption can exempt it from the local school operating millage, up to 18 mills (MCL 211.7cc). That is a big piece of many bills, but it is not a full homestead tax holiday. County, city or township, school debt, community college, library, and other voter-approved millages can still apply.

To claim PRE, file Form 2368 (Principal Residence Exemption Affidavit) with the city or township assessor. Filed on or before June 1, a valid claim applies beginning with that year's summer levy. Filed from June 2 through November 1, it applies beginning with that year's winter levy (MCL 211.7cc(2)). PRE is not the same as the Michigan Homestead Property Tax Credit on your income tax return.

Separately, the buyer must file a Property Transfer Affidavit (Form 4260) with the local assessor within 45 days of the transfer of ownership (MCL 211.27a(10)). Filing late can bring additional tax and interest, plus a penalty. For a home you own and live in as your principal residence, the penalty is $5 per day after the 45 days, up to $200 (MCL 211.27b).

Keep the Notice of Assessment. It lists SEV, taxable value, classification, PRE percentage, and whether a transfer of ownership was recorded. If the home stops being your principal residence, Treasury says you must file Form 2602 (Request to Rescind PRE) within 90 days.

Transfers that do not uncap (and refinancing)

Not every paper change is a transfer of ownership. MCL 211.27a(7) lists exemptions. Common ones for homeowners include a transfer between spouses, creating or ending a tenancy by the entireties for spouses, certain transfers into or out of a trust for the settlor or spouse, and beginning December 31, 2014, certain transfers of residential real property to a parent, sibling, child, or grandchild of the owner or the owner's spouse when the property is not used for any commercial purpose afterward (MCL 211.27a(7)(u)).

A transfer given as security, such as starting, assigning, or ending a mortgage, is not a transfer of ownership (MCL 211.27a(7)(j)). Refinancing by itself does not uncap taxable value. If your refinance also records a new deed that changes who owns the property, that deed is a separate question. Ask the title company and assessor how that deed will be treated.

Family and trust rules are fact-specific. For an edge case, use the State Tax Commission Transfer of Ownership Guidelines and, if needed, a Michigan attorney or tax professional. A mortgage broker cannot decide a transfer exemption for you.

A simple way to estimate the jump

A mill is $1 of tax per $1,000 of taxable value. Annual tax is roughly (taxable value / 1,000) times the combined millage that applies after exemptions. Compare the seller's taxable value with current SEV. The gap between those two numbers is the room uncapping can add before millages and PRE are applied.

To use it, take the current SEV from the assessor, divide it by 1,000, and multiply by the millage rates that will apply to you after PRE. Then do the same with the seller's taxable value. The difference is roughly how much the annual bill can rise in the uncapping year. Get the millage rates and PRE assumptions from the assessor or treasurer for your parcel.

The Michigan Department of Treasury publishes a Property Tax Estimator. Treat it as a planning tool, then confirm the parcel with the local assessor. Do not let a generic online calculator replace that call.

See today's rate for your scenario

Property tax uncapping changes the escrow side of a purchase, not the interest rate. When you compare quotes, look at the rate, the APR, and the dollar cost or credit together. The live Michigan rate table on this site shows today's rates with the APR beside each one, and the rate tool prices your own loan with no sign up.