Michigan Property Tax Uncapping After You Buy a Rental or Care Facility
Michigan caps how fast a property's taxable value can grow while one owner holds it, and the cap ends the year after a sale. Under Proposal A, approved by voters in 1994, taxable value can rise each year by the rate of inflation or 5 percent, whichever is less. Twenty years of that leaves an older building taxed far below its market value. When you buy it, the gap closes in one step, and the seller's tax bill stops being any guide to yours.
Assessors call it uncapping, and in the tax year after a transfer, taxable value resets to the state equalized value, which is set at half of market value. A Midtown Detroit duplex bought in late 2024 went from a taxable value of $41,326 to $261,800 the following year. On an apartment building or care facility held by one family for decades, the increase can consume a full year of projected cash flow.
Investment property carries a second cost that homeowners avoid, because rentals and commercial buildings do not qualify for the principal residence exemption, so they also pay the local school operating levy of up to 18 mills. If you underwrite from a homeowner's bill, you will come in low on both counts.
Close anytime this year and the uncapped value appears on next year's assessment notice, which arrives in late winter, then on the summer and winter tax bills after it. Closing prorations are usually based on the seller's capped bill, which leaves your escrow and your first-year budget short, and the shortfall shows up months after closing. If your lender escrows taxes, it will raise your monthly payment once the new bill posts, so the increase hits your debt service as well as your operating budget.
Buying the entity that owns the building does not get around it, because a transfer of more than 50 percent of the ownership interests in a business that owns property counts as a transfer of ownership under the statute and uncaps the value the same way a deed does. The exceptions are narrow, covering things like transfers between spouses and transfers that only create or release a lender's security interest, and an ordinary acquisition is not on the list.
File a Property Transfer Affidavit with the local assessor within 45 days of closing, because the form asks for the price, the financing and whether buyer and seller are related, which is how the assessor learns a transfer happened at all. Skipping it does not keep the old value, because when the assessor finds the transfer, you get billed for every year of taxes that should have been levied after uncapping, plus interest and penalties.
After the reset, the cap applies again and holds future increases to inflation or 5 percent. The new assessed value can be appealed at the local March Board of Review and then at the state Tax Tribunal, and property classified as commercial can skip the board and go straight to the Tax Tribunal by May 31. An appeal will not undo the uncapping, but it can correct an inflated value, and that matters most on a care facility, where your price bought a business and its license along with the real estate.
Before you make an offer, estimate taxable value at half your purchase price, or half the real estate allocation if you are buying an operating business, and multiply it by the local non-homestead millage, and use that as your year-one tax rather than the seller's bill. Call the assessor to confirm the millage and any special assessments, then tell your lender you have already done the math, because its underwriter will check it.
A year-one tax figure you built yourself also keeps the reset from surprising you in the first year, when cash flow is tightest and a new owner has the least room to absorb it. I help buyers of apartment buildings and care facilities build projections that carry the reset tax bill through the hold, alongside the rest of the expenses a lender will test. If you are pricing a deal where the seller has owned the property for years, send the financials to amer@awadcapitaladvisors.com, and I can help you see what the first year really looks like.