Property Taxes: A Guide for Buyers and Sellers in Detroit

As you may be aware, taxes are one of those two vexing yet unavoidable aspects of life. Property taxes are considered among the unavoidable taxes. It’s just that many of us don’t know as much as we should or could about these taxes. How are property taxes determined, who pays them in a real estate transaction, and what can you do to reduce them, for example? This guide for Detroit buyers and sellers covers all you need to know about property taxes.

Property Tax Overview

Property taxes are taxes “relating to real estate and other sorts of property Property taxes are usually assessed by local governments, and the tax is paid by the property owner. The property tax is usually calculated depending on the property’s location and value.” Property taxes typically go to the local government/ municipality to fund infrastructure and basic necessary services such as road construction/maintenance, schools, police and fire departments, and so on. 

And you have to pay this tax. “You must also pay this tax. “Failure to pay your property taxes might result in a tax lien being placed on your property by the taxing authority. A tax lien is a legal claim against property or financial assets that you own or that may come to you in the future. It is a claim on your assets, not a seizure of them. The government may be entitled to some or all of the revenues if you sell the asset.””

A Guide for Buyers and Sellers in Detroit

How Your Property Tax is Calculated

In theory, the way your property taxes in Detroit are calculated is pretty straightforward, but it can get rather complicated in actual practice. The basic formula for calculation involves “multiplying the value of the property by a tax rate: Property tax = value of the property x tax rate.”

The complications arise when it comes to the actual factors and components that really determine your tax bill . . . 

Property Value

  • The assessed value is typically less than the market value, and the difference varies according to location.
  • “Cars, machinery, and other property might be subject to personal property tax.”

Tax Rate

  • “Real estate tax rates are often based on the “millage rate,” where one mill is equal to one-thousandth of a dollar. Your tax rate might not be expressed as a percentage, but rather as some number of mills.”
  • “Some taxing authorities apply the tax rate only to a portion of the home value rather than to the full home value. That can reduce the bill.”
  • “The local taxing authority, again likely your county but possibly your city or town instead, typically determines the tax rate.”

Who Pays the Property Taxes

Now let’s see who pays the property taxes in a real estate transaction in Detroit. It typically goes like this . . . 

The buyer must reimburse the seller for the prorated amount of the taxes if the seller has already paid all of the taxes for the year. “The seller should be charged his or her prorated part with the amount placed in escrow” if the taxes haven’t been paid.

“This is, in fact, how real estate tax payments are usually arranged when you buy or sell a home. The home sale contract should clearly set forth these requirements–requiring each party to pay his or her pro rata share of the tax.”

Who Can Take the Tax Deduction

A buyer can deduct the property taxes she paid as an itemised deduction when filing her taxes for the year. “The IRS treats the seller as having paid the property taxes up to the date of sale, and the buyer as having paid the taxes due after the date of sale,” according to the IRS.

Here’s an illustrative example . . . 

“Bill purchases a home from Sandra with a September 1 closing date. The real estate tax year in the area was the calendar year. The real estate tax due for the year was $900 and was paid by Sandra on August 1. The sales contract Bill and Sandra sign should pro-rate payment of these taxes based on the number of days each owns the house during the year of sale. Bill will own the property for 122 days, which amounts to 33% of the year (366 days in a year ÷ 122 days = .3333). Bill should reimburse Sandra for 33% of the $900 property tax she paid – that is, Bill should pay $300.”

How to Lower Your Property Taxes

If you believe your property taxes are excessive, you do have options. Consider that an estimated 30% to 60% of properties in the United States are over-assessed, so there’s a strong chance you’re overpaying. If you believe this is the case, you should file an appeal against the assessed value.

You can also lower your tax bill by taking advantage of certain programs offering tax deductions and exemptions for . . . 

  • Seniors
  • Veterans and surviving spouses
  • Disabled people
  • Those who own agricultural land

In addition, “most states offer homestead tax breaks that exempt part of your home’s value from property taxes.”

Where to Learn More . . . 

Property taxes, on the other hand, can become quite extensive and complicated, especially for buyers and sellers. A good Detroit agent, on the other hand, can assist you in successfully navigating this difficult sector. Contact us at (248) 487-1877 if you’re a buyer or seller in Detroit and have questions about property taxes.

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