Frankenmuth

WHAT IS "UNCAPPING" AND WHY ARE SO MANY HOMEOWNERS SURPRISED BY IT? By Richelle Jimenez, City Treasurer AT THE CITY OFFICE, WE OFTEN RECEIVE QUESTIONS AND COMPLAINTS ABOUT TAXES. WHEN ASKED WHAT IS THE ONE THING YOU WISHED HOME BUYERS KNEW, THE OFFICE STAFF ALL HAD THE SAME ANSWER: UNCAPPING. M any homebuyers discover what uncapping is the hard way – when they see a substantial and unexpected increase in their taxes. The concept of uncapping dates back to Proposal A, passed by Michigan voters in 1994. This legislation established two key values for properties: the State Equalized Value (SEV) and the Taxable Value (TV). The SEV is meant to represent 50% of a property's actual market value, while the TV is the figure upon which property taxes are calculated. For new homeowners, the taxable value of the property will be equivalent to the SEV the first year after purchase. Each January 1st, the assessor will determine the increase of the market value (or SEV), while the taxable value will increase based on inflation. Under Proposal A, the annual increase to a property's Taxable Value is capped at a rate of 5% or the rate of inflation, whichever is lower. Additionally, the taxable value cannot exceed the SEV. This protective measure prevents a homeowner's taxes from skyrocketing in a rapidly appreciating real estate market. This means for the first year, the new owner will fall under the previous owner's taxable value. Owners will only see the uncapping after the December re-assessment, and will be shown on the assessment notice mailed out each February. It is at this time that any questions or arguments can be brought to the Board of Review scheduled for the end of February. The July tax bill after that first January in the home will be the first time the uncapped amount will be seen. For many residents, this could be a tax bill or two later. "It's a critical piece of information that every homebuyer needs to understand," says Richelle Jimenez, City Treasurer. "Buyers need to factor in this potential tax increase when they're calculating their mortgage and monthly budget, not just relying on the previous owner's tax history." While the uncapping of property taxes upon a sale is standard practice, Michigan law does provide for some exemptions, particularly for transfers between certain family members. For example, transfers of residential property to a "qualified relative," such as a parent, child, or sibling, may be exempt from uncapping, provided the property is not used for commercial purposes. The process of determining a property's values is handled by local assessors. It's important to note that an assessor cannot simply use the sale price of a home as the basis for the new SEV. They are required to determine the true cash value of the property using a fair and consistent methodology, independent of the sale price. 9

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